Since 2010, China has held a total of $1 trillion in US Treasuries. But in the past six months, the world’s second-largest economy has sold $100 billion worth of U.S. debt. This makes China the largest foreign creditor of the United States. Where are these sales coming from?

In May, China held $980.8 billion US debt paper, which is $23 billion less than the previous month and nearly $100 billion more than a year ago. The US Treasury Department announced this on Monday.

Japan is now America’s largest external creditor, having reduced its U.S. debt to $1.212 billion in May from $1.218 billion in April. The total value of foreign-owned US debt fell to $7.420 billion in May from $7.450 billion in April.

Diversify

According to financial analysts, the sale makes it clear that the Chinese want to diversify their currency holdings.

In addition, the Federal Reserve’s series of rate hikes that began earlier this year have depressed U.S. bond prices, making them less attractive.

For example, the US Federal Reserve raised interest rates by 75 basis points in June. Wall Street generally expects a similar increase for the upcoming meeting in July.

Why buy US debt?

Why did China buy so much US debt in the last 2 decades? A decades-long deficit in the US trade balance with China owes much to this.

The world’s largest economy spends more on imported goods and services than on its own exports. The situation is even more acute in the trade balance with China, the world economy’s largest exporter. The Chinese government receives US currency from Chinese companies as payment for their exports. The Chinese government uses those dollars to buy US bonds.

The Basics: When a foreign power buys such a government bond, it makes a loan to the U.S. government. The latter shall repay the amount after an agreed period. In addition, the lender earns interest on the advanced amount.

Oil

However, another reason why China still holds a large part of its portfolio in the world’s reserve currency is the oil trade. Most oil transactions around the world are settled Green backs. China is now the world’s largest importer of oil.

Now for the first time we notice that it is Russia, not Saudi Arabia. China’s leading oil supplier There is Russia, through Western sanctions against the belligerent nation Paying for his oil in dollars is of no use …

(NS)