Hawks in Washington like to warn about China’s military buildup. They should be encouraged by Beijing’s emerging financial drawdown.
China trimmed its mammoth dollar holdings by $13.6 billion in October from the previous month, putting its hoard at a 20-month low. This appears to reflect an economic decision to reduce its stash of Treasuries, which at $1.25 trillion remains the largest in the world. As China works to expand the yuan’s use worldwide, it’s moving toward a market-determined exchange rate. That means buying fewer dollars. Whatever the reason, though, the decline means that U.S. ally Japan — the second-largest holder of Treasuries at $1.22 trillion — will soon surpass China again, as it did very briefly in 2013.
Since 2008, when China took over the No. 1 spot, U.S. officials have fretted about Beijing’s leverage over the American economy. In 2009, then-Secretary of State Hillary Clinton frankly asked former Australian Prime Minister Kevin Rudd, “How do you deal toughly with your banker?” On her first trip to China as a cabinet member in February that year, Clinton dropped human-rights issues in favor of prodding China to buy more debt. “We are truly going to rise or fall together,” Clinton said. “By continuing to support American Treasury instruments, the Chinese are recognizing” that interconnection.
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