Trend will continue amid falling yuan, but won't impact U.S. economy: experts
China sold a record $41.3 billion in U.S. Treasury securities in October - the biggest seller for the month - bringing its total holdings to $1.12 trillion, according to Treasury International Capital (TIC) data released by the U.S. Department of the Treasury on Thursday U.S. time. This brings the country's holdings to its lowest level since 2010.
China has been dumping U.S. Treasury securities since June, a move that is expected to continue under the pressure from the falling yuan. From June to October, China sold a total of $128.3 billion in U.S. Treasury holdings.
Depreciation and outflow pressure
The Chinese government is shifting away from its longstanding buildup of U.S. assets, as the pressure on the economy from capital outflows and the yuan's depreciation builds, said Liu Xuezhi, a macroeconomist with the Bank of Communications.
On Thursday, the U.S. Federal Reserve announced it would raise interest rates by 0.25 percentage points and that it was planning to adopt another three hikes in 2017, due to an improvement in the labor market and inflation.
On Friday, the Chinese currency dropped to its lowest rate against the U.S. dollar in eight-and-a-half years when the People's Bank of China set the yuan at 6.9508 per dollar.
"If the U.S. interest rates continue rising, China will continue selling U.S. bonds to help increase its foreign exchange reserves and support the yuan," Liu told the Global Times on Sunday.
China's foreign exchange reserves stood at $3.05 trillion in November, down 2.2 percent from October, the lowest level since March 2011. Meanwhile, the State Administration of Foreign Exchange has adopted measures to tighten control over capital outflows, such as increasing scrutiny over companies' foreign exchange transactions.
Liu noted that capital outflows can hasten the yuan's depreciation.
The first 11 months of 2016 saw an increase of 55.3 percent year-on-year in China's outbound investments to $161.7 billion, official data showed.
Impact on U.S. economy
Experts believe that the continued sale of U.S. Treasury securities by the world's second largest economy will not influence the U.S. economy.
"There is a strong market expectation for an economic recovery in the U.S., which will make some other countries and regions consider U.S. Treasury securities worth holding in the coming years," Wang Jun, deputy director of the Department of Information at the China Center for International Economic Exchanges, told the Global Times on Sunday.
The sum total of all net foreign acquisitions of long-term securities, short-term U.S. securities and banking flows in October represented a monthly net TIC inflow of $18.8 billion, the U.S. Treasury said in a press release posted on its website on Thursday. Of this amount, net foreign private inflows accounted for $60.5 billion, while net foreign official outflows were $41.7 billion, the report noted.
Emerging economies such as India and Thailand increased their U.S. Treasury securities holdings in October in comparison with the previous month, the TIC data showed.
With a holding of $1.13 trillion in U.S. debt in October, Japan surpassed China and became the largest U.S. creditor for the first time in nearly two years. Wang noted that this will not change relations between China and the U.S.
