China is America’s biggest foreign creditor. Could it turn off the tap? Investors chinese investment in us treasury bonds getting worried about what America’s biggest foreign creditor might do next. A report that China is reconsidering how much U.
Wednesday and raised questions about the relationship between the world’s two largest economies. Bloomberg reported Wednesday that the Chinese government is looking to cut back on the amount of U. The article quickly caused a sell-off in U. But on Thursday, the Chinese agency that manages the country’s foreign currency holdings cast doubt on the report. We believe the story may have quoted the wrong source, or a piece of false information,” the State Administration of Foreign Exchange said in a statement. The response fell short of a full-throated denial, and didn’t push U.
China already holds a huge amount of U. 2 trillion — and some independent estimates suggest it could be even higher. But Beijing’s rate of purchases has been slowing down for a while. Some of the dollars spent on these goods eventually find their way to China’s central bank, which uses them to buy U.
Buying Treasuries keeps the dollar stronger relative to the yuan, which has helped Chinese exports in the past. Investors worry that if China purchases fewer Treasuries, the U. It may also have to increase the rate of interest it pays. That would raise the cost of servicing U.