China’s holdings of U.S. Treasury securities have fallen below $1 trillion for the first time since 2010, as Beijing seeks to stabilize its rapidly devaluing currency, the yuan, and stem massive capital outflows that threaten to trigger an economic collapse in Asia’s most important economy.
According to the latest figures from the U.S. Treasury Department, China’s holdings dropped by about $94 billion in November to $1.09 trillion, continuing a downward trend that started in March and April and has lasted throughout the rest of the year.
For the first time in 12 years, China’s holdings of U.S. debt have fallen below $1 trillion amid rising interest rates that have made Treasury bonds less attractive.
Treasury Department data released on Monday show China’s portfolio of U.S. government debt dropped to $980.8 billion in May, continuing a trend that started early in 2021. In total, that’s a drop of nearly $23 billion from April, and nearly $100 billion or 9% from a year ago.
The trillion-dollar mark had never been so quickly broken, until last Friday, when it dropped to below $1 trillion for the first time since May 2010. China’s position as America’s biggest holder of debt has been replaced by Japan. Japan now holds $1.2 trillion in American debt.
Debt levels have decreased as the U.S. Federal Reserve has been taking measures to combat the U.S.’s highest inflation rate since 1981. If rates rise on bonds, then prices will drop, resulting in a capital loss for investors who sell the bonds before maturity.
Many experts agree that China’s falling debt in foreign markets has largely been due to Beijing diversifying its portfolio.
The Fed raised overnight borrowing rates by 0.75 percentage point in June; another hike of the same size is expected next week.
