Several years ago, during the peak of the “China takeover” prophesy, in which China was assumed to be primed for global dominance, the conventional wisdom held that China owned the US through its massive accumulation of US Treasury bonds, and that a massive Chinese sell-off would be the death knell of America’s economy.
China is in fact in the midst of a major sell-off. Its holdings fell by $30.4 billion in July, as the Chinese government sought to prop up the weakening yuan. But the dire warnings for the US economy have not come to fruition; US treasury bonds are finding plenty of buyers among foreign and US firms, and foreign central banks.
Key reasons:
– The US dollar is the world’s reserve economy, and US debt is generally considered safe
– The US Treasury securities market is the largest and most liquid in the world- As foreign economies have weakened, their governments, like China’s, have sold off Treasuries in a bid to buy and sustain their local currencies.
– China is not selling abruptly enough to disrupt the market, and prudence is likely to ensure that continues
– Developing nations, led by China, are no longer viewed as the prime engines for global economic growth
