Reflecting the tremulous relationship between the US and China, new data shows that China is successively reducing its investment in US treasuries. According to the latest data available as on December 9, China is no more the largest investor in US government bonds.

 The Chinese have reduced their US security holdings by $41.3 billion during October 2016. Total Chinese investment in US Treasuries is now $1.12 trillion. Now japan is the largest lender to the US with $1.13 tn investment in US securities.

The weakening good will among the two countries is making them towards economic conflicts. Less investment in US securities will reduce mutual dependence and may strengthen their conflicting stands.

Thus, the declining treasury investment by China is not good news for the rest of the world as both countries have trust deficits on several issues. China is already concerned about the rising trend of anti-globalisation in the West. Trumps’ warm glance on Taiwan has not gone well in Beijing. Similarly, the confrontation on South China sea is remaining.

China is the largest foreign exchange reserve holder with its forex reserve amounting to nearly 3.5 trillion, down from its historical high of $4.1 trillion caused by capital outflows. With huge amount of reserves which is nearly two times India’s GDP, China has the limited option of buying US government securities. Only the US can issue that much huge amount of securities.

The fall in Chinese investment is supposed to be caused by declining foreign exchange reserves with People Bank of China. Over the last few months, tremendous capital outflows have been registered; tempting the PCB to act against such outflows.

                 US Federal Reserve’s interest rate policy is encouraging outflows from China as US yields have gone up. In its effort to support Yuan, China is selling its forex reserves. 

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