China, despite geopolitical tensions, continues to retain a significant presence in the US bond market, with state managers of foreign assets holding over 50% of their portfolios in US investments. The recent fluctuations in the US bond arena prompt questions about potential offloading of dollar assets by Chinese institutions, yet concrete evidence connecting these sales to market volatility is elusive. With few viable alternatives abroad and none within its borders, a hasty liquidation of these assets would inflict greater damage on China than the US.
China continues to invest heavily in US assets, holding over 50% of its foreign asset portfolio there, despite global tensions. Recent volatility in the US bond market raises questions about potential Chinese sales, yet evidence remains inconclusive. With limited options, a mass sell-off by China could harm itself more than the US.
In conclusion, while speculation surrounds China’s dollar asset management, existing data suggests that the country remains deeply invested in US markets. The absence of appealing alternative investments forces Chinese institutions to maintain their substantial stakes, as any rash divestment could significantly harm China’s own economic stability. Thus, the complexities of the US-China financial relationship continue to unfold against a backdrop of caution and strategic manoeuvring.
Original Source: www.capitaleconomics.com
