Following the latest TIC report, which showed China dumping over $40 billion in Treasuries in October, bringing its total to the lowest since 2010, and at $1.116 trillion sending China below Japan only for the second time in the list of top US creditors, questions emerged about China's strategy on US debt holdings.
Today, this specific question that was addressed by an official at China's State Administration of Foreign Exchange (SAFE), who calmed nerves and told US reporters at a briefing that while China will make "tactical adjustments" on its US debt holdings, Beijing's long-term investment view on US debt has not changed, adding that U.S. Treasuries are China’s long-term strategic investment targets as MarketNews reported.
When asked if China is strategically cutting its US treasury, he replied "absolutely not" adding that it is difficult to forecast value of U.S. dollar and U.S. Treasuries according to Bloomberg.
He also said that there is no barrier for foreign companies to transfer investment returns out of China as long as they comply with relevant rules.
Of course, whould Trump push aggressively for trade concessions, especially following the appointment of Peter Navarro, and demand a decline in Chinese exports to the US, ostensibly by imposing tarriffs, it is likely that China's tactical adjustments will acceleration the recent one-way liquidation trendline.
Shifting from bonds to the other topic du jour, namely China's reserve outflows, the official said China would step up enforcement of existing policies to ensure forex market stability, and that forex reserve fluctuating around a certain level will be the norm.
However, in a rather surprising admission he said that it is uncertain if China’s forex reserves will increase or drop, and said guidance is needed on China’s outbound M&A deals.
Finally, he said that SAFE would cooperate with customs, tax authorities and police to crack down underground banks and fake trade, stating that it’s good timing to push ahead reforms on inflows, such as allowing foreign investors to access bond market.