China is selling record amounts of US debt amid signs of diversification

(Bloomberg) — China sold a record amount of Treasury and U.S. agency bonds in the first quarter, underscoring the Asian country’s move to diversify away from U.S. assets as trade tensions persist.

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Beijing shed a total of $53.3 billion in Treasuries and Treasuries in the first quarter, based on Bloomberg calculations of the latest U.S. Treasury Department data. Belgium, often seen as the custodian of Chinese assets, sold $22 billion worth of government bonds during that period.

Chinese investment in the US is drawing renewed attention from investors amid signs that tensions between the world’s largest economies could worsen. President Joe Biden has unveiled sweeping tariff increases on a range of Chinese imports, while his predecessor Donald Trump said he could impose a tariff of more than 60% on Chinese goods if elected.

“Given that China is selling both, even as we move closer to a cycle of Fed rate cuts, there should be a clear intention to diversify away from US dollars,” said Stephen Chiu, chief foreign exchange and interest rate strategist for Asia at Bloomberg. Intelligence. “Chinese sales of U.S. securities could accelerate as the U.S.-China trade war resumes,” especially if Trump returns as president, he said.

As China sells dollar assets, its holdings of gold in the country’s official reserves have risen. The precious metal’s share of reserves rose to 4.9% in April, the highest according to central bank data from 2015.

China and countries with close ties to it have increased their gold holdings in foreign exchange reserves since 2015, while countries in the US bloc have kept them largely stable, Gita Gopinath, first deputy managing director of the International Monetary Fund, said in a speech this month. “This suggests that gold purchases by some central banks may have been driven by concerns about the risk of sanctions,” she said.

–With assistance from James Mayger.

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