The National Treasury released data on Wednesday indicating that China’s holdings of U.S. debt fell below $1 trillion for the first time since 2010, marking the latest milestone in China’s decreasing reliance on the U.S. dollar and raising concerns about the economic future of both countries and the world as a whole.
China’s U.S. debt holdings have fallen below $1 trillion, the first time they have done so in 12 years. This was due to rising interest rate which has made Treasury bonds less desirable.
The Treasury Department released Monday’s data showing that China’s portfolio U.S. government debt fell to $980.8 million in May. This continues a trend that began in 2021. Nearly $23Billion (9%) less than last month. This is nearly $100B more than a year ago.
China was the first foreign holder of U.S. government debt, holding $1 trillion. With $1.2 trillion, they lost the title.
The U.S. Federal Reserve increased rates to prevent inflation from reaching its highest rate since 1981. This has led to a decrease in debt. Higher rates decrease the value of bonds for the holder. They must cash it before it reaches maturity.
The decline in China’s share can also be attributed to Beijing’s desire to diversify its foreign debt portfolio.
The Fed increased overnight borrowing rates by 0.75 percent in June. A second increase of this magnitude is expected next week.