politics

Fears grow over China's possible massive sales of U.S. debt as weapon

42 Comments
By Tomoyuki Tachikawa

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China is waiting for the next president.. fearmongers.

-4 ( +3 / -7 )

This is what happens when a goverment spends more than they have comming in.

USA goverment debt rises and bonds are sold to cover that debt .

For decades USA debt has been soaring and now China hangs it over their heads.

It is not just a threat to the USA, it is a threat to the whole world economy, as countries economies are intertwined.

2008 showed us that.

9 ( +12 / -3 )

China wouldn't dare. Just as China own US debt, the other way is also the same. US also own a huge amount of China debt and apparently they never pay the US any interest all these years. I read in the news if the US use those debt to balance it out, the outcome would be even better for the US because China debt to the US is significantly higher. China is bluffing. They know Trump isn't someone they can just intimidate and hopes he back down using threats. So they would never dare to do such a suicide action. Trump is stubborn and very aggressive unlike all previous presidents. Best they can hope is that Trump is not elected.

1 ( +8 / -7 )

Treasuries are sold in dollars so the Fed can buy them back. End of story.

11 ( +14 / -3 )

".....trade wars are good, and easy to win."

Trump should be in a padded room, not in the White House.

0 ( +8 / -8 )

Of course the US has been in a bad position with selling its debt outside the US. BUT for big buyers like China & Japan there are also very real RISKS if they were to decide to sell large amounts of that debt in a short period of time!!

I think China is now realising this & is selling off over time to LOWER CHINA'S risk!!

Like I have been harping for decades folks, with the Chinese Monster we all helped create, the longer we wait the more the world will have to PAY & that also includes WAR!!!

I see both the US & China is going to hurt but I think China is has more to lose, well their NASTY govt has more to lose!

6 ( +7 / -1 )

Without Treasuries China will have one less tool to manipulate its currency. Sell lots of crap to the US and get paid in surplus of dollars then buy Treasuries to store excess otherwise convert back to Chinese currency and its value goes up making exports less competitive. Japan is a master of this game.

9 ( +11 / -2 )

China isn't going to dump US treasuries. The article mentions doing so would immediately reduce bond prices (since any commodity in surplus fetches a lower price) and raise interest rates. The article even mentions this would harm business in Japan. What it fails to mention is that such a move on the part of China would hurt everyone all around the world who might be invested in US bonds. China isn't going to cut off their nose to spite their face this way. Nations and private investors all around the world would point the accusing finger at China for their sudden poverty. Last, the final outcome would be a permanent change in the terms of trade as Yuen and US Dollar values adjusted that would make Chinese goods much more expensive in the US. China might only do such a thing if it seriously believed there would be no possibility of future beneficial trade with the US, and if the Chinese were willing to suffer global opprobrium for the global economic disruption it would create.

8 ( +8 / -0 )

Thanks DT for expanding on what I was hinting at!!!

1 ( +1 / -0 )

If you have $1.07 trillion dollars, would you rather let it just sit or let it sit and perform? If they were to dump U.S. bonds in bulk on the market they would simultaneously devalue their own dollar denominated holdings and strengthen the yuan relative to the dollar.

2 ( +3 / -1 )

Have you been to a Wallmart? What will they sell in the absence of Chinese goods?

5 ( +6 / -1 )

Hecho en Mexico! Bye bye China.

6 ( +6 / -0 )

China may massively sell U.S. government debt it holds as a weapon to choke the world's biggest economy.

That would be a mistake of epic proportions.

Trump should be in a padded room, not in the White House.

That would be Biden.

Hecho en Mexico! 

Hecho en USA!

5 ( +9 / -4 )

Nonsense. The balance of US treasuries held by China would be devalued, and undermining the world's fiat currency would negatively affect countries that purchase Chinese products, as well as massively disrupt commodities markets, causing volatility in energy and food prices that would greatly impact China. On top of that, China would have to take the blame for the entire meltdown. This appears to be another case of JT simply posting an article without an editor stopping to consider whether it is plausible, much less newsworthy.

11 ( +11 / -0 )

Do it china! Do it! it would be another step to decoupling, its worth it!

8 ( +8 / -0 )

Global financial and economical transactions or developments are just like go games.you have to look at it as a whole.countries or players will and should put the overall and longterm benefit as the primary goal instead of the "kill to eat meat" approach.

2 ( +2 / -0 )

If China sells off its bonds, couldn't the Fed just buy them up - or at least a sufficient number of them to maintain the target US interest rate?

9 ( +9 / -0 )

The difference between a dictature and a democracy is that a dictature can make moves that a democracy would not do.

Beware that the China elite don't care if country suffers. The USA and rest of the world would be more psychologically impacted and at risk than China, Japan in particular.

Usually the least possible event is the one that happens, covid-19 reminding that to me at least. Better safe than sorry to acknowledce and get out a bit of the dollar assets. By the way, Euro is stronger than the very monkey made dollar.

1 ( +1 / -0 )

Time to change sides

-2 ( +1 / -3 )

Won't work. The USD increasingly becomes more powerful than ever during the pandemic. Most Japanese investors now sunk their entire wealth into the USD, as almost of them are prepared to flee Japan in droves. That's just one example.

At the same time, the USA can recall the CCP China to pay back the Qing China debts in term of more than 1 trillion USDs. The USA will pressure Taiwan to declare independent, and the CCP China will solely remain as the only China to inherit the debts.

3 ( +4 / -1 )

This is one of the biggest myths/conspiracy theories out there.

"that would push down debt prices and drive up interest rates in the United States"

The writer is spreading erroneous info/misinformation and needs to google "yield curve control," which the BOJ is doing and the Fed can easily do.

If China sells off its bonds, couldn't the Fed just buy them up 

Yes, it could, and then it could cancel them. Problem solved.

2008 showed us that.

US treasuries had nothing to do with 2008.

3 ( +3 / -0 )

When bonds are sold someone buys them. What's the difference who owns them. China will be the loser since they will be selling low. Using US Treasury bond sales as a weapon won't work since the US would cut China off from the global market. Ask Iran how that works. It's better if China just cools its jets and waits for he US elections. Unless, of course, China intends to grab Taiwan, while Trump is distracted.

0 ( +1 / -1 )

Sell US bonds, hold US dollars. No difference except China gets lower returns. Stupid. Do it, pls.

5 ( +5 / -0 )

This is one of the biggest myths/conspiracy theories out there.

Actually, it depends. China is more humongous in term of economy to power than Japan. If Trump didn't come to power quickly in 2016, China would have be able to accomplish the final phase of its plan aka Made In China 2025. If China accomplished this plan, it will hold all core technologies and sciences without the need of intellectual theft and industrial espionage anymore. China would become as powerful as the Soviet Union.

China would engineer the new currency world order to replace the USD. This is the real straw behind the "conspiracy" of dumping the US bonds and debts. If China is ever going to do it, then it must have the necessary components to establish the new global currency against the USD and the FED.

Fortunately, China hawks in Washington DC put a halt to the Chinese dream of global domination.

2 ( +2 / -0 )

The trade wars with China, Canada, and the EU should rapidly end once we get a return to rational leadership in DC.

-3 ( +1 / -4 )

China fear

Corona fear

Trump fear

sheesh JT, must you parrot the MSM so loyally?

4 ( +5 / -1 )

With Sino-U.S. tensions escalating over several security and economic issues, fears are mounting in the financial markets that China may massively sell U.S. government debt it holds as a weapon to choke the world's biggest economy.

japan did this for decades agains the U.S. Unfortunately the U.S. fell for it. Times are different now. The U.S. has a real President with real Goals.

3 ( +4 / -1 )

Until the Don came along and upended the apple cart, American decline stretched to the horizon. Chinese threats to offload treasuries eloquently attests to how much the game has changed.

4 ( +4 / -0 )

Have you been to a Wallmart? What will they sell in the absence of Chinese goods?

I have been boycotting Chinese made goods for years. I have found that there is virtually nothing made that is made only in China. Shop carefully, examine the merchandise to see where it is made (most often if it is made in China the wording will be very small and hard to find) and it is made in China, set it down and look for another flavor that is not made in China. It is easiest with clothing and footwear ( most of my shoes are made in the US with my boat shoes hand sewn in the Dominican Republic and some walking shoes from Vietnam). New Balance top of the line shoes are still 100% US made. Much electronics are made in Taiwan, Malaysia, and Mexico. Learn to shop around and read labels. Lots of great American made appliances out there from Speed Queen, Frigidaire (owned by the Electrolux Group of Sweden with factories in the US), Whirlpool (some come from Mexico but nothing from China). Plenty of good US made vacuum cleaners ( Aerus Lux which used to be Electrolux USA until the new owners sold the Electrolux name back to the former Swedish parent, Tristar, Filter Queen, Rainbow, and even now some Iris Ohyama products are manufactured in the US at a factory in Texas). Others like Sanitaire and Koblenz I know are made in Mexico. Shop around. It is far from impossible to avoid buying from China. I highly recommend boycotting Chinese products. Big middle finger to the Middle Kingdom.

2 ( +2 / -0 )

If China sells off its bonds, couldn't the Fed just buy them up - or at least a sufficient number of them to maintain the target US interest rate?

The US Federal Reserve shouldn't have to do anything. As long as the US faithfully maintains its promise to honor those bonds they would all quickly be bought up by bargain hunters and the price would soon rise back to their former level, bringing interest rates down in the process. The only permanent damage would be to China, who's Yuen would rise dramatically in value relative to the US Dollar and make the terms of trade highly unfavorable to China. The whole reason China buys those bonds is to prevent their Dollar surplus from reducing the value of the US Dollar relative to the Yuen. It is the same reason the Japanese buy US Treasuries (and now own just a slightly larger value of them than the Chinese). Without buying US Treasuries there is no mechanism for China to prevent the devaluation of the US Dollar relative to the Yuen. The whole notion the Chinese are suddently going to dump bonds is ridiculous.

3 ( +3 / -0 )

If US interest rates rise it would also make US bonds more attractive for global and US investors. Does not matter if Chine sells, someone else would buy up the bonds. The main factor is that US bonds are attractive for investors, that will not change.

0 ( +0 / -0 )

Well said Desert Tortoise

0 ( +0 / -0 )

This is idiotic. The fed can easily buy back the debt (treasuries) without much impact. We just did that with 3 trillion... the 1 trillion China has is nothing.

3 ( +3 / -0 )

So easy to print money and just buy them back.....not a problem.

1 ( +1 / -0 )

With Sino-U.S. tensions escalating over several security and economic issues, fears are mounting in the financial markets that China may massively sell U.S. government debt it holds as a weapon to choke the world's biggest economy. japan did this for decades agains the U.S. Unfortunately the U.S. fell for it. Times are different now. The U.S. has a real President with real Goals.

The Japanese Prime Minister made the threat openly on Japanese TV to sell off their holdings of US Treasuries en-mass in reprisal for the ongoing US-Japan trade dispute going back to the 1980s. In case you don't recall it was every bit as bitter as the current US-China trade dispute. I have books in my book case from that era with dire predictions of Japan eclipsing the US as the worlds number one economy and equally dire predictions of a second US war against Japan. At trade fairs in Japan their police would arrest and deport delegations from California that were promoting California grown rice, saying California had nothing to teach Japan about rice (today Calrose rice is highly sought in Japan and fetches a premium price). There were disputes over cell phone bandwidth with accusations the Japanese were denying certain bandwidth to prevent Qualcomm technology from being used. Then out of the blue a Japanese PM goes on national TV to tell the world Japan is about to dump all their holdings of US T-Bills. The US Treasury did an analysis of what would happen and decided that like China today, Japan would suffer a lot more than the US. So the US told the Japanese to go ahead and do it. This was not the reply the Japanese expected! The Japanese then did their own analysis and apparently came to the same conclusion the US did. Japan backed down and never mentioned it again. The Chinese are acutely aware of all of this history and especially the part where the twin bubbles, real estate and stock prices, popped and led to decades of economic stagnation. China doesn't want to go there but combined with their demographics they seem headed for the same fate as Japan.

5 ( +6 / -1 )

Fortunately, China hawks in Washington DC put a halt to the Chinese dream of global domination.

Laughable. Xi Jinping has sealed China's fate with his aggressive and hegemonic policies. China is losing friends fast not because of anything the US said or did but rather because of what Xi is doing and saying,

4 ( +5 / -1 )

China sells us debt gets dollars and then turns the dollars into different currencies. It does not have to be just one currency. It will hurt the US in many different perspectives. Goal is to change the dollar from being the currency reserve of the world. As for making American good cheaper, what goods?

-2 ( +0 / -2 )

China needs the US more than the US needs China!

There are plenty of countries just aching to replace China as producers of low cost goods...

2 ( +3 / -1 )

China sells us debt gets dollars and then turns the dollars into different currencies. It does not have to be just one currency. It will hurt the US in many different perspectives. Goal is to change the dollar from being the currency reserve of the world. As for making American good cheaper, what goods?

That isn't how it works. China earns lots of US Dollars in trade with the US, more than it spends buying things from the US. It uses that surplus of US Dollars to buy US Treasury notes. Actually to be clear, lots and lots of Chinese companies and individuals use their Dollar earnings to buy US Treasury notes. There is not just one centralized organization in China buying and holding all those US Treasuries. It is thousands and thousands of different companies buying those US Treasuries and thousands more individual investors in China. That is another reason why the who claim is laughable. The CCP can't command every investor and company in China holding US Treasury notes to divest all at once. It's not that easy and it would cause grave financial harm to all of those bond holders, many of which are among the members of the CCP Central Committee. They are not taking it in the shorts just to spite the US. The whole idea is so ridiculous.

0 ( +2 / -2 )

I remember very well. That's why I'm glad we have a real president with real ones.

I've been saying to people that japan back in the day was very much like china today. And to an extent, japan still is the same but maybe a bit less edgy toward the U.S. But of course that all depends on what the topic is. Point is, japan matured at least a little bit, but it's still good to keep an eye on them.

Desert TortoiseToday 02:27 am JST

With Sino-U.S. tensions escalating over several security and economic issues, fears are mounting in the financial markets that China may massively sell U.S. government debt it holds as a weapon to choke the world's biggest economy. japan did this for decades agains the U.S. Unfortunately the U.S. fell for it. Times are different now. The U.S. has a real President with real Goals.

The Japanese Prime Minister made the threat openly on Japanese TV to sell off their holdings of US Treasuries en-mass in reprisal for the ongoing US-Japan trade dispute going back to the 1980s. In case you don't recall it was every bit as bitter as the current US-China trade dispute. I have books in my book case from that era with dire predictions of Japan eclipsing the US as the worlds number one economy and equally dire predictions of a second US war against Japan. At trade fairs in Japan their police would arrest and deport delegations from California that were promoting California grown rice, saying California had nothing to teach Japan about rice (today Calrose rice is highly sought in Japan and fetches a premium price). There were disputes over cell phone bandwidth with accusations the Japanese were denying certain bandwidth to prevent Qualcomm technology from being used. Then out of the blue a Japanese PM goes on national TV to tell the world Japan is about to dump all their holdings of US T-Bills. The US Treasury did an analysis of what would happen and decided that like China today, Japan would suffer a lot more than the US. So the US told the Japanese to go ahead and do it. This was not the reply the Japanese expected! The Japanese then did their own analysis and apparently came to the same conclusion the US did. Japan backed down and never mentioned it again. The Chinese are acutely aware of all of this history and especially the part where the twin bubbles, real estate and stock prices, popped and led to decades of economic stagnation. China doesn't want to go there but combined with their demographics they seem headed for the same fate as Japan.

-1 ( +0 / -1 )

I remember very well. That's why I'm glad we have a real president with real ones.

It was the Clinton administration that dared Japan to offload their Treasury Notes. Nobody could believe the US had the brass to do that. But President Clinton and his administration also realized that debt handed down to them by the Reagan and Bush administrations was a major liability and the primary reason domestic manufacturing was being priced out of the market. By the final year of the Clinton administration the nation had run two consecutive years of small but honest budget surpluses and there was talk of splitting future surpluses between paying down the national debt and building up the Social Security Trust Fund. George W. Bush undid all of this with his tax cuts. Mr. Trump has touted his chops on negotiating trade deals but while the trade deficit with China has declined marginally the overall US trade deficit has grown under his watch. His administrations tax cuts have to be financed by selling Treasury notes. That has given our other trade partners the means to soak up their excess US Dollars as I described above and keep the value of the US Dollar artificially high in trade. The one and only way the US will ever reduce its trade deficit is to run budget surpluses for the next several decades. There is no other way to do it.

-2 ( +0 / -2 )

I hope other readers here can see that the US has created its current trade situation by running endless budget deficits and only the US can resolve the problem by running budget surpluses. The whole rest of the world sees this clearly except it seems the general public in the US and too many politicians. Sloppy habits on the part of the US hand its trade partners the tools to undercut US manufacturing then the US whines like a spoiled child when their manufacturers loose their competitive edge around the world. The US stomps its feet and cries "dumping" or the orange jesus claims all and sundry have been taking advantage of the US for decades. NO. It is the US that has been playing the games for too long and the rest of the world is sick and tired of hearing the US whine. The tactic worked well as a means to build up some critical allies during the Cold War, as the battle for hearts and minds was a critical as the military balance. Having wealthy prosperous allies made the narrative about the superiority of democratic capitalism a much easier sell to the third world. Building up those allies and running a debt to build up the US military was a rational policy. Unfortunately the Cold War is three decades behind us but US leadership became addicted to deficit spending. It has to end someday and the longer it goes on the more painful that someday will be for the US.

-2 ( +0 / -2 )

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