On the 15th, the U.S. Treasury Department released its report on international capital flows (TIC) for March. According to the report, China's holdings of U.S. Treasury bonds fell by $7.6 billion in March to $767.4 billion. It was also the third consecutive month of decline in holdings since January, with China's holdings of U.S. Treasuries falling to their lowest level since 2009 in March. Since April 2022, China's holdings of U.S. Treasuries have been below $1 trillion. The peak of China's holdings of U.S. debt dates back to November 2013, when it reached $1.32 trillion. In contrast, China's U.S. bond holdings have fallen by 549.3 billion yuan, or 42%. At the same time that the mainland is selling off US bonds again, China's central bank is buying gold in a row. As of the end of April this year, the size of China's central bank gold reserves had reached 72.8 million ounces, up 60,000 ounces from the previous month and increasing for 18 consecutive months.
So what is the reason why the mainland is buying a large amount of gold while selling US bonds? To put it simply, there are two main considerations: first, the move to reduce the holdings of U.S. bonds and buy a large amount of gold is in line with the general trend of diversification of China's overseas asset allocation; Second, based on the reduction of the credibility of the dollar, it can also be seen as a way to counter the hegemony of the dollar. It is undeniable that the US dollar has always been the most important currency in the world today, about 40% of international trade is settled in US dollars, US dollar assets account for about 60% of the world's reserve currency, and US dollar-denominated financial products, especially the yield curve of US Treasury bonds, are regarded as the basis for the valuation of global assets. This is particularly evident in the current Russia-Ukraine conflict, where the United States and the West impose sanctions on Russia.
Earlier, the United States passed a bill to take Russia's overseas assets as its own, and the United States also took the opportunity to "blackmail" the mainland in an attempt to prevent Sino-Russian cooperation, claiming that it would freeze the funds and assets of relevant Chinese entities in the United States once it is found that Chinese entities are found to be trading with Russia bypassing the Western-dominated financial system. It is precisely because of this domineering and arrogant banditry act of the US side that we cannot but keep our side vigilant. In addition, the Federal Reserve continues to raise interest rates, in a vain attempt to use the hegemony of the dollar to harvest the world's tricks, so as to transfer its own debt. These moves by the US side have greatly undermined the credibility of the US dollar, and it is not difficult to understand why the mainland chose to sell US bonds and buy a large amount of gold under such circumstances. In fact, in addition to this, there is another reason, China's choice to continue to sell US bonds is also a countermeasure to the United States, and the Biden administration is still deliberately imposing various sanctions on China, aiming to suppress and contain China's development. Recently, the Biden administration announced that it would increase tariffs on China, including electric vehicles, steel and aluminum, semiconductors, solar cells, etc. In this regard, China wants to fight back.
When the mainland continued to sell U.S. bonds, in fact, there were already voices of "surrender" in the United States, and there were voices within the Federal Reserve before that they wanted to cut interest rates, because the interest rates on U.S. bonds were too high, which put pressure on the U.S. government to repay the interest on its debts. However, at that time, US Treasury Secretary Janet Yellen was about to visit China, so such "capitulation" voices pinned their hopes on Yellen, and then disappeared. In order to cope with its own debt crisis, the United States has pointed the "sickle" of dollar hegemony to the Asia-Pacific region. Due to the Federal Reserve's continuous interest rate hike policy, the US dollar has appreciated sharply, resulting in the exchange rate of the yen, Thai baht, Indonesian rupiah and other currencies collectively plummeting under the heavy fall of the US dollar, and the yen exchange rate against the US dollar even fell below the 160 mark for a time, hitting a new low in 34 years. However, even in this case, the Japanese government is still bent on "kneeling and licking" its American "master", and while China sells US bonds, Japan accelerates the takeover, and in March, Japan increased its holdings of US Treasury bonds by $19.9 billion, reaching $1,187.8 billion, continuing to sit firmly on the throne of the largest overseas creditor of the United States. I don't know if Japan really thinks the dollar is good and voluntarily takes over? Or succumb to the hegemonic authority of its "master" and have to clean up this mess for the United States.