Chinese Holding of American Debt Securities
In today's geopolitical realm, the Sino-American economic relationship has very immediate and lasting effects on the international financial markets. Since the devaluation of the yuan against the dollar in the 1990s, China has built an enormous current accounts surplus with the United States of America through the trade of goods and services. On the Chinese end, it has acquired a significant amount of US Treasury Bills and other debt securities, much like Japan has reinvested its trade surplus into the acquisition of American assets in the United States (see Rockefeller Center).
With the recent depreciation of the US Dollar of 30% versus the Euro and Canadian dollar, the Chinese government is no doubt worried about the impact of this devaluation on the value of their debt holdings. Although it has started to reduce its dollar exposure for a separate basket of debt securities from other nations, a sudden run on selling US debt securities would have devastating global effects on both economies and strong residual effects on its trading partners and the rest of the world.
