Will China ever dump US bonds?- My POV

[Foggy_Bottom]

I've seen this threat made here and this line of thought pushed by some senior posters from time to time.

Setting aside the fact that the Chinese have been actually buying more of our treasury's for sometime vs. at times liquidating small amounts of it. They are too vested in our bonds economically speaking, in trying to dump it.

A dump would mean that all their trading partners will start going into such economic pain- where it will inherently hurt the Chinese economy. They won't want to see the U.S., Japanese and EU markets slow to a grind. You don't go about killing a large portion of your global consumer base and think it would help.

Selling Treasury's would appreciate ( updated) the value of the yuan, something China can't afford. Both countries need each other in this regard. What's worse, should it happen- it will forever make the Chinese 'persona non grata' among the 90% of the developed world.

If you notice the trend among countries, it actually runs towards US bonds and considers it the most safest, even during the 2008 crisis.

There are a lot of other reasons why China has no good options in seeing it dump our bonds. But I won't go into for now and keep it simple for those internet warriors who think, any such option is realistic.

The bank that manages China's official currency has repeatedly tried to explain to the Chinese public of these realities.

During the 2008 crisis the Russians had approached the Chinese about doing the same with Fannie/ Freddie bonds and the Chinese refused.

 

[Chinese-Dragon]

Why would we destroy the value of our own reserves, by mass selling US bonds and crashing their price?

That's like flushing our own money down the toilet.

 

[cnleio]

U.S (house) and China (creeper), our relationship

 

[Chinese-Dragon]

If we mass sold US bonds, the dollar would fall, and the Yuan would go up relative to the dollar.

That is bad for our exports.

It would also cause US interest rates to rise, making borrowing more expensive, and hurting American economic growth, which would end up hurting global economic growth. Meaning less demand for our exports.

Dumping US bonds would be like cutting off our nose to spite our own face. Who will compensate us for our losses?

 

[Chinese-Dragon]

Anyway, @LeveragedBuyout is our resident economic expert here, he'll be able to explain it better than me.

 

[Kaniska]

I think as long as China is benifitting economically, it is win win for both of them....

 

[Götterdämmerung]

The Chinese us the USD to by assets worldwide. They are too smart to shot at their foot by dumping their money down the toilet, although I think that's where the USD should go to.

As long as the Chinese have the billions of USD, they have an effective weapon against the US – just in case.

 

[LeveragedBuyout]

Anyway, @LeveragedBuyout is our resident economic expert here, he'll be able to explain it better than me.

Fortunately, Michael Pettis already explored this issue in depth (as posted by @SvenSvensonov previously), so I would encourage interested users to read his article:

My Reading of the FT on China’s “Turning Away from the Dollar” - Carnegie Endowment for International Peace

China will not sell our treasuries because it cannot sell our treasuries, for various reasons (it would harm China's economy, and China has no other productive outlet for its capital, let alone the lack of an alternative market large enough to absorb Chinese capital). As Pettis argues, the United States might actually prefer for China to dump USD and displace the USD as the global reserve currency, so such an outcome would not be unwelcome if the process were controlled (which, given China's caution, it surely would be).

And you are correct that if China sold treasuries, the RMB would appreciate against the USD. Not sure what our "State Department" friend is referring to above.

 

[AZADPAKISTAN2009]

Why would China do that , dumping , bonds would mean US would go bankrupt , and then no one would be able to purchase Chinese goods ?


Indirectly Chinese economy would get hurt


China has invested in USA in hope that it would understand the international community wishes on international diplomatic matters and come to resolve such crisis with out need for War or threat of WMD

Hopefully China can persuade the USA people to vote out , war mongering folks and install a democratic government that is peaceful to world over all


One way may be USA can lower its debt is may be if they decide to Sell off California to China
I think 1 Trillion would be sufficient for that province and may be also sell Detroit to China


After all one time USA bought states from Mexico and Indians , now Chinese would buy the states from USA , its law of commercialization and capatalism rules

 

[Foggy_Bottom]

And you are correct that if China sold treasuries, the RMB would appreciate against the USD. Not sure what our "State Department" friend is referring to above.

I stand corrected and rightfully so.
I keep telling myself to avoid getting into the weeds of economic data

The sell off would appreciate not reduce the yuan.

 

[55100864]

LOL,This is so funny, Why our american friends behave so insecure these days? Why would we do that? of course we want to make our rules to sever our own interest, because even the countries like Belgium and Luxembourg have more say in the IMF and World Bank, yet Obama accuse China for being a free rider,LOL...Now, we are going to build our own car and welcome others to take the free ride.

 

[kbd-raaf]

One thing has become quite clear. @US_statedept_retired is most definitely not a former US State Dept. official.

They are most certainly not this incompetent.

 

[AZADPAKISTAN2009]

China could sell the Bonds to Russia who might out of need for their economy could decide to sell the bonds now that would be ironic


Russia buys all US bonds from China for 800 Billion
Russia sells the bond in Market gets $$$ Immediately
US now sees its currency go down C_C cries foul

 

[Foggy_Bottom]

One thing has become quite clear. @US_statedept_retired is most definitely not a former US State Dept. official.

They are most certainly not this incompetent.

Thank you. How I got away with for 30 years still baffles me.

 

[Chinese-Dragon]

One thing has become quite clear. @US_statedept_retired is most definitely not a former US State Dept. official.

They are most certainly not this incompetent.

I have seen @US_statedept_retired refer to the Bangladeshi members here as "Jamatis".

That is pure South Asian political slang (and offensive slang at that), not something an American state department official would use, or even understand.

In fact I doubt any non-South Asian would have heard of this word, let alone use it against someone in that context.

I've been here for years, and I barely know what it means, only that it is a South Asian insult mostly directed at Bangladeshi members.