Bloomberg reported that China is selling a record amount of US debt while buying gold. Previous reports of debt selling were false. Let’s check in with Michael Pettis at China Financial Markets for another opinion.
China Sells Record Sum of US Debt
Bloomberg reports China Sells Record Sum of US Debt Amid Signs of Diversification
China sold a record amount of Treasury and US agency bonds in the first quarter, highlighting the Asian nation’s move to diversify away from American assets as trade tensions persist.
Beijing offloaded a total of $53.3 billion of Treasuries and agency bonds combined in the first quarter, according to calculations based on the latest data from the US Department of the Treasury. Belgium, often seen as a custodian of China’s holdings, disposed of $22 billion of Treasuries during the period.
China’s investments in the US are garnering renewed investor attention amid signs that tensions between the world’s largest economies may worsen. President Joe Biden has unveiled sweeping tariff hikes on a range of Chinese imports, while his predecessor Donald Trump said he might impose a levy of more than 60% on Chinese goods if elected.
“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,” said Stephen Chiu, chief Asia foreign-exchange and rates strategist at Bloomberg Intelligence. “China’s selling of US securities could speed up as US-China trade war resumes” especially if Trump returns as president, he said.
China is Buying Gold
One part of the story is not in question. That part pertains to China buying gold.
Is China Dumping US Debt?
I asked Michael Pettis that question yesterday. Pettis graciously replied with an email this morning plus a five-part Tweet.
Contrary to Popular Belief, Interest Rates Not Impacted
“If China were swapping US assets for assets of developing countries (which is unlikely), this would be a win-win-win, as it would likely lead to an increase in domestic investment in those countries.”
There is no doubt about that.
So, Who Pays the Price?
Data Muddied
By Email: “It’s possible, but the data are so muddied that it’s hard to tell. I hope its true.”
Since we have had this discussion before, by muddied, I believe he means China can mask it US debt holdings by parking them in State Owned Enterprises rather than official government holdings.
Another thing China has done in the past is to sell US treasuries as part of an effort to shore up the yuan. Selling dollars and buying yuan on the foreign exchange markets would tend to strengthen the yuan.
Is that going on?
I do not claim that is what’s going on now, but China has done this in the past. And if so, it’s not exactly a sign of strength, nor does the word “dumping” remotely apply.
Masking holdings in SOEs and efforts to shore up the yuan are two ways the lead chart might not be as it appears.
Contrary to the idea that “dumping treasuries is some sort of nuclear option by China that will wreck the US” it isn’t. Nonetheless, expect to see a lot of silly comments on that idea in many places.
It will be win-win-win if China assists other developing countries. Otherwise, China may be attempting to shift the pain away from the US to the EU, while buying gold as a hedge against sanctions.
China Shock II Is Coming, the EU Will Be Hit Hard, Then the US
This morning, before I saw the reply from Pettis, I commented China Shock II Is Coming, the EU Will Be Hit Hard, Then the US
Please click on the above link for discussion.
Also see BYD Unveils the “Shark” a Plug-in Hybrid Pickup Truck Built in Mexico
Made in Mexico is another way China tries to maintain export mercantilism. China and the US would both be better off if China did more to support Chinese consumption than exports.
Finally, please see Joe Biden vs Joe Biden on Tariffs, a Green Trade War Is Underway
I have been calling for an escalation of global trade wars for months. All the pieces are in place. In fact, escalation is clearly underway already. It will get worse no matter who wins the election.
So, returning to the lead question one more time, I give the nod to Michael Pettis: “It’s possible, but the data are so muddied that it’s hard to tell. I hope its true.”
global trade is slowing at solid pace now
less JUNK coming in from china
and with fewer critical resources/rare earths – merika can’t make many weapons to export for free
China’s peak holding of US Treasuries was around $1.4 trillion in 2011. Now it holds about $750 billion. They probably holding US Treasuries to their expiration date.
Fed Funds rates at 0% and US 10 Year Treasuries at 10% is very possible.
Can’t happen here?
Someone has to be buying these treasuries China is dumping. I would suspect the US and EU central banks, not unlike corporations buying back their own stock.
All parties need to strengthen their own currencies, esp. the West as they embark on the greatest inflationary ‘printing’ spree of all time in their quest for internal feudal control, while China invests in the developing world.
Exactly
China invests in the developing world
The west just rapes them to death and gives them death squads to silence critics like the Sendero Luminoso in Peru.
Look at the modern housing China built for their peasant miners in Peru. From hovels with thatched roofs to condos with running hot and cold water and stoves to cook over. + Modern schools, parks and playgrounds.
Or what China is doing in the Solomon Islands.
The colonial thieving model is dead.
The west’s Albino Devils “barbaric humanity” era is coming to a close.
The Fed doesn’t trade securities — it’s done through its primary dealers. These market makers are required to buy and sell Treasuries to maintain an orderly market.
The charts of gold and US interest rates co-relate well enough to postulate the thesis China is selling US bonds and buying gold; however, co-relation is not causation.
“Made in Mexico is another way China tries to maintain export mercantilism.”
That won’t be working for much longer. Labor shortages are spreading everywhere and I’ve written plenty of comments as to why….
https://www.reuters.com/business/autos-transportation/toyota-repeatedly-halted-mexico-plant-after-suppliers-hit-by-worker-shortage-2024-05-17/
“Employees are frequently changing jobs in search of higher salaries. It has become difficult to secure personnel, and we can no longer maintain the required production volume,” said one of the sources, who works at a supplier.
“It’s turtles all the way down and inflation all the way up.”
Many illegal immigrants are risking their lives and their family savings to escape Marxist sh!tholes in Latin America and go to the USA.
If Mexico offers better wages and economic opportunities, they won’t have a labor shortage for long. Millions of illegal immigrants will just stop their journey in Mexico, get a reliable paycheck from a Chinese company with a plant in Mexico.
Why would they pay exorbitant taxes to the gringos in el-Norte? Do the employees of the US Department of Who Cares What add any value? No, not even to the average US citizen never mind to illegal immigrants.
Taxes are not a necessity, especially when those paying the taxes get little value for their money. The US public sector costs way above average, but delivers less than average services in return — that is the problem.
The US (and western Europe) have been defaulting on public services promises for years, and last year the US decided quite arbitrarily not to pay its debts to Russia.
Don’t know how much this hurts Russia (I suspect more than Russia admits), but the damage to the US reputation is absolutely devastating.
You missed the entire point of my comment and that is that the demographics don’t favor the western world anymore for manufacturing. There isn’t an infinite amount of immigrants to come to Mexico or the US despite all the rhetoric from politicians and conspiracy theorists.
The list of plenty of young labor and most of it is in Africa and India.
https://en.wikipedia.org/wiki/List_of_countries_by_median_age
And here is another thing to think about, you need to look 10+ years ahead, not what you see now because that’s how long it takes to rebuild supply chains. Hope that you are dead by then or extremely rich to afford a decent lifestyle.
The USA does not have a labor shortage; we have an infestation of useless bureaucrats and welfare takers.
The USA has a SKILLED labor shortage, which is a function of a failed education system (education can be apprenticeship or college or self taught or a combination). Skills are not a function of demographics.
I spent last weekend showing some kids in my neighborhood (not my own) how to replace the carburetor on their lawn mower (they were supposed to be cutting my lawn). They were complaining that all the repair shops had closed, and they couldn’t get their mower fixed. Meanwhile they said “the Mexicans” (I think they were actually Guatemalan) knew how to fix their own mowers. The carb on their mower had been gummed up over the winter by the ethanol — required by US regulators.
Every male in my high school class took a basic car/engine repair class. We all knew the basics. Clearing and changing a carb on a mower was something everyone was required to learn, even those of us who planned to get a desk job.
Perhaps changing a carb is a dated example. Maybe in modern times every student needs to learn how to disassemble a PC, install memory and storage, etc. You must be able to take apart, repair and reassemble the tools you work with day to day. You must be able to write simple software yourself, even if you later get someone in the IT department to streamline it.
How can a US citizen invent a new gadget, a new product or service — if they can’t write software and can’t even change the RAM in their PC? Heck, how many useless paper pushers can’t even write a spreadsheet macro?
If I don’t pay a fee to get a license, a piece of paper from the local bureaucracy… no one outside the bureaucracy will care. My car, my lawn mower, my PC will still work just fine.
If I don’t know how to repair my mower or my PC — all the f#cking compliance and regulatory staff in the world won’t get my lawn cut.
This is not a demographics problem. Ours is a society that rewards the stupid, and makes the productive spend the whole day in compliance training.
Do you consider a fast food job as “manufacturing”?
The barriers to serious manufacturing in the West have been building for several decades. You’re off base to think it’s merely workers.
Pettis is an academic… and by that I mean he is clueless.
Don’t care what academic credentials he supposedly has, PhD or other. He lacks real world experience. A college campus is fantasy land, in the real world, Pettis would have been forced to stop day dreaming years ago.
Enough with this crap of pretending academics are “experts”. Within their fields, that is not a given (many of them are plagiarists). Outside their overly specific field, they are clueless bafoons.
China’s holdings of US Treasuries have declined markedly for many years, and its not just transferring holdings into hedge funds or to Jersey Island / Cayman Island entities (China is doing those transfers as well, but its just a prelude to selling the UST for more economically viable assets).
China sees the US government going bankrupt, and they saw what Senile Joe did to Russian holdings.
Pettis is either a fool or a liar – and it doesn’t matter which
I used to follow Pettis’ writings 15-20 years ago, but stopped reading because its painfully obvious he doesn’t get off campus much. Decades ago, he seemed to have one foot in academia and one in the real world — but that was a very long time ago.
Much like Senile Joe, Pettis’ thinking is stuck back in the last century. Pettis is physically younger than Senile Joe but mentally they are both way past their sell by dates.
If the US government is going to seize foreign assets based on political winds (as happened with Russia), it is no longer a safe haven. Treasuries are now as unsafe as dozens of other assets. That doesn’t mean the USDollar is dead, it means the safe haven status is dead.
Only a clueless moron from another century would argue otherwise.
Gee, ‘Willie’
Einstein was an academic who practiced millinery: just stitching space/time fabric. I hope he’s proud of himself destroying a city center and creating fear of the future.
Remain happily clever,.
I choose the longest checkout lines at the grocery store, so I can read National Enquirer and the Globe for free.
Gee Wheeler, Einstein lived and worked roughly a century ago. Einstein was clever. The academics of the last 50 years are not.
Thanks for providing additional evidence of how out of date academia is.
Einstein was a plagiarist adulterer.
And I thought he just sold bagels.
Willie,
The cool thing about attending elite schools is that I got to rub up against people who are smarter than me. I listened, I argued, and I borrowed ideas and behaviors that work. I’m here looking for different opinions and better logic that pierces my own. My tabloid fetish is to remind myself that Mr. Market is a servant, not a guru.
Thanks for helping me get rich.
Wheeler,
If you were rubbing elbows with Einstein, then you are a very old man. A contemporary of Biden and Trump, if not older.
If you rubbed elbows with Pettis, then you learned to parrot whatever dumb sh!t the professor said.
And if you went to US colleges in the last 25 years or so, you learned that 1+1 = whatever that makes you feel, or it equals the patriarchy is evil. You wouldn’t be able to write a coherent like comment like OMG like you know.
I disagree with your comment, but the fact I can understand what you wrote tells me you are in your late 40s and probably much older.
I confess that I had the opportunity to ‘rub elbows’ with Charlie Munger who Buffett has credited with being the ‘architect’ of Berkshire Hathaway’s success. Double curious is that Warren himself has recommended to his younger sister Bertie that rather than trying to ‘beat’ Wall Street, she surround her crown Berkshire holding with timely buys of low cost index funds.
Willie,
You may have an actual argument to make (you make it at the end, about the US losing its safe haven status for multiple reasons) but you spend 90% of the time simply abusing Pettis with words that add zero to your argument.
Unless you get the ratio down to at least 50% abuse/50% actual argument, you are working against yourself…since most people tune out empty ranting long before they get to your useful arguments.
Which part of his reply do you take issue with?
He didn’t dispute China buying gold. He simply said he isn’t sure if China is dumping US holdings or not.
If he isn’t sure China is selling Treasuries, then he is a damn fool.
Its not a close call. Its not a gray area. Its really obvious to everyone in the banking sector that China is reducing its UST holdings. Really obvious. PAINFULLY obvious. Its not a close call.
Doesn’t matter if Pettis is lying or stupid, either way he cannot be trusted
Selling != Dumping
They could very well be selling to raise cash to say bail out their housing bubble or make investments in Africa etc. That’s what Pettis is saying. He’s not sure they are dumping vs just selling.
I like you more and more.
If you say it than I don’t have too.
Spot on again
A fair assessment. Pettis had a rare position with Tsinghua (the “MIT of China”, founded by westerners) and was relieved of his duties for his incessant pearl clutching and fairly to establish that he understood anything about how the financial markets actually work.
Is China selling or just letting to roll off? 53B is peanuts in overall holdings.
China is also a major gold producer, so buying own production instead of selling on London metal exchange isn’t a giant leap of imagination.
China does not sell gold on the LBMA. Plsdo some research.
If you called for a global trade war doesn’t that mean that you were rooting for it? I had the impression that you were against trade wars by principle. I don’t think there was much that the US could have done to support Chinese consumption since that depends on Chinese government economic policy and not ours.
The dollar is up. Market is moving with the dollar. Is the Fed trying to blow up foreign banks again?
Dollar strength is a problem in this environment. A strong dollar doesn’t fit well with the “end of the dollar” narrative.
The spot value of a currency, or a series of values, is just that: a series of spot prices. It’s difficult for the layman to understand how financial instruments (including currencies and commodities) are priced in the market. But I will suggest that you look at the trading history of the 5 year US Treasury bond over the last decade.
Please be aware that in a world of floating currencies by definition relative currency values fluctuate depending on multiple variables. Moreover, not currencies trade freely. This is a complex area and research is necessary to make intelligent commentary.
https://x.com/ankitatIIMA/status/1791068689112133939
Option, accumulation : in the next few years SPX [1M] might flop several times to test the 4,800/ 4,500 first, before making a rd trip to Feb 2020 high, in order to rise to a new all time high by the end of the decade.Thus SPX can be in a wide/wild trading range, reaching a bearish [1M] RSI territory, to cleanse the zombies.
“China and the US would both be better off if China did more to support Chinese consumption than exports.”
That way, Chinese could spend retirement bagging groceries while living under a bridge as well! Now wouldn’t that be great!
Also: The sheer amount of Dollar denominated well-past-it’s-due-date-rot piled up in China; will take eons to get rid of. Possibly lifetimes, which is why the exercise can easily seem a bit futile. But the Communist Party seems constitutionally bent on engaging in such very-long-term projects. Perhaps due to not having to worry about election cycles etc. And, in the long; and even possibly not so long; term: The US Dollar IS indistinguishable from the Argentine Peso. There’s really no good reason to hang on to it, aside from short term considerations of convenience.
China has massive US dollar dominated debt and imports USD numberated commodities(outflows) and if China can not import dollars through exports or attract Dollar investment(inflows), China will get USD by selling their piggybank of US Treasuries and support the Yuan. China has to be USD liquid. China is buying gold because of uncertainty not because it pays interest. This is a sign of economic instablitliy witness the Yen.
Your comment is to a valid argument what your spelling is to conventional orthography (“numberated”).
[1M] SPX, if June close < Feb close, or if July close < Mar close bad things can happen ==> US10Y % will plunge along with gold.
The night of Biden-Trump debate, the DJIA will be at or above 40,000, I assure you. Optics – everyone knows Trump’s go-to economic indicator is the stock market, which doesn’t make sense for anyone who was never on Wall $treet. Not sayin’ its right.
Looking at the chart provided, I must say that the “PBOC has been buying some gold” looks like an understatement, given how vertical it appears
The most recent kick up, is largely price driven.
I suppose it is possible the price ramp was due to Chinese buying….
But regardless; the graph is of the holdings’ fiat-valuation. It’s not by Gold weight.
A chart of the weight of gold would make no sense.
It would look like this -nearly a flat line – slight up slope
__________________________________________________________________________________________
Perhaps you mean something else
I was responding to the comment that PBOC _BUYING_ of gold had somehow gone vertical….
Also: As long as a graph is of any one particular actor’s holdings; the weight of gold it holds, does not have to remain flat. Lots of individual actors add or decrease their holdings of physical metal by weight, over time.
They must have seen Gold Finger or “Lord of The Ring” and are going after “my precious”.
Likely just realizing variations on the Argentine Peso theme, aren’t really all that, as far as reliable store of value is concerned.
Another potential cause – some holdings in China are reported at fair market value not face or book value. Some folks confuse the two and interpret market value declines as selling (or less buying/net runoff).