Economist explains China's reduced investment in U.S. government debt

China has reduced investments in US government debt because of the confrontation, it was a response to Washington's actions against Beijing. This was reported to "Izvestia" on November 29 by Mikhail Belyaev, financial analyst, candidate of economic sciences.

Earlier in the day, RIA Novosti reported that Japan and China - the world's largest foreign holders of U.S. government debt - got rid of a significant part of bonds in the third quarter. The sell-off is attributed to the election of United States President Donald Trump, an unexpectedly sharp Federal Reserve (Fed) rate cut, and catastrophically rising U.S. foreign debt, among other things.

"Japan, China and the United Kingdom are the largest holders of U.S. debt. Japan is in first place, China is in second place and the UK is in third place. China, I should say, has virtually halved its investment in U.S. securities over the last year, year and a half. It actually reduced from $1.5 trillion to about $800 billion. Japan has a little higher, the UK - about $600 billion. Of course, the U.S. government debt is growing, but so far Washington is coping with it, as the debt is not an amorphous mass, but consists of certain packages of securities with maturities, terms of interest payment and repayment," - said the economist.

According to him, as long as the U.S. fulfills its obligations, the debt does not lead to catastrophic consequences. At the same time, he pointed out that the transfer of bonds does not affect the state debt itself.

"China is selling US government bonds because the two countries are in certain confrontational moments. Since they were the largest holders of U.S. debt, this was Beijing's response to Washington's actions. The Americans need to place their next securities somewhere, and China is clearly showing that it is not willing to buy them. Here's the answer. This is a response to the United States, including raising duties on products from the PRC. Beijing is like saying that it will simply stop buying American debt securities and the United States will "hang" with its debt," the economist specified.

Assessing the impact of Trump's victory on getting rid of countries from investing in U.S. securities, Belyaev emphasized that the politician understands that "there will be no default and no refusal to pay the debt and can not be". China and Japan may have seen additional risks in the events in the United States. Such things often happen in transitional periods, he added.

Back in August, current U.S. President Joe Biden signed an order limiting U.S. investments in China's high-tech industries. It was reported that the measure would be implemented next year. It will affect investments in semiconductors and microelectronics, quantum computing and improvement of artificial intelligence capabilities.

At the same time, The Washington Post published a statement by Liu Pengyu, a representative of the Chinese Embassy in Washington. He emphasized that China was disappointed with the decision of the White House. The United States' investment was of great importance for the development of critical technologies, Pengyu said.