China sold a record $53.3 billion in US bonds and boosted its gold reserves in early 2024, aiming to lessen its dependency on the US dollar amid growing trade frictions.
China has sold a record $53.3 billion worth of US Treasury and agency bonds in the first quarter of 2024. This divestment is seen as part of China's broader effort to diversify away from US dollar assets amid persisting trade tensions. According to the latest data from the US Department of the Treasury, along with China's sales, Belgium, which is often viewed as a custodian of China's holdings, disposed of $22 billion of Treasuries during the same period.
The divestment has attracted renewed investor attention, especially as signs point to a potential deterioration in the relationship between the world's largest economies. The Biden administration has recently announced significant tariff hikes on a range of Chinese imports. Additionally, former President Donald Trump has suggested he may impose a tariff of over 60% on Chinese goods if he is re-elected. Stephen Chiu, chief Asia foreign-exchange and rates strategist at Bloomberg Intelligence, commented, "As China is selling both despite the fact that we are closer to a Fed rate-cut cycle, there should be a clear intention of diversifying away from US dollar holdings."
Amidst the selling of dollar assets, China's holdings of gold have increased in the nation's official reserves. The precious metal's share rose to 4.9% in April, marking the highest level since 2015 according to central bank data. Gita Gopinath, first deputy managing director of the International Monetary Fund, noted in a speech that central banks in China and countries with close ties to it have been increasing their gold reserves since 2015, which may be driven by concerns about sanctions risk.
Business Insider also reported on China's record sales of US bonds. The country's step away from US debt has been linked to its efforts to prop up the yuan, which has weakened against a rallying dollar. The US Dollar Index has seen significant gains, while the yuan has declined, making imports more expensive for China. This trend could worsen if rising US protectionism continues to bolster the dollar's strength.
