China is no longer the largest foreign creditor of the United States

Since 2010, China has held a total of over $1 trillion in US Treasuries. But over the past six months, the world’s second-largest economy has sold more than $100 billion in US debt. This means that China is no longer the largest foreign creditor of the United States. Where are these sales coming from?

In May, China had $980.8 billion in american debt paper, down $23 billion from the prior month and nearly $100 billion from a year ago. The US Treasury Department announced it on Monday.

Japan, which reduced its US debt to $1.212 billion in May from $1.218 billion in April, is now the United States’ largest foreign creditor. The total value of US debt held by foreigners fell from $7.450 billion in April to $7.420 billion in May.

to diversify

The sales clearly show, according to financial analysts, that the Chinese want to diversify their foreign currency reserves.

Additionally, the series of Federal Reserve rate hikes that began earlier this year have pushed US bond prices lower, making them less attractive.

For example, the US central bank raised interest rates by 75 basis points in June. And Wall Street generally expects a similar increase for its next meeting in July.

Why buy US debt?

Why has China bought so much US debt over the past 2 decades? The decades-long US trade deficit with China has a lot to do with it.

The world’s largest economy spends more on imported goods and services than it earns from its own exports. This scenario is even more extreme in the trade balance with the Chinese, the largest exporters in the global economy. The Chinese government receives US coins from Chinese companies as payment for their exports. The Chinese state uses these dollars to buy US bonds, among other things.

The basics: When a foreign power buys such a government bond, it lends money to the US government. The latter must repay the sum after an agreed period. In addition, the creditor receives interest on the amount advanced.

Oil

However, another reason why China still holds so much of its portfolio in the world’s reserve currency is the oil trade. The majority of oil transactions in the world are settled in greenbacks. And that China is now the largest oil importer in the world.

We note that now, for the first time, Russia, and not Saudi Arabia, Leading oil supplier in China is. Russia, through the sanctions imposed on the west against the belligerent country, has no advantage to being paid in dollars for your oil …

(ns)