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International relations

China cuts back on US Treasurys for fifth straight month

Beijing props up yuan against greenback to head off devaluation criticism

China has slashed its U.S. Treasury holdings as its yuan-buying kept the currency from depreciating sharply.   © Reuters

SHANGHAI -- China's holdings of U.S. Treasurys have declined for the fifth month in a row as Beijing has moved to support its home currency amid the trade war.

Mainland Chinese holdings fell $12.5 billion on the month to $1.13 trillion as of the end of October, according to the U.S. Department of the Treasury. This marked the lowest figure since May 2017 and the continuation of declines that began when bilateral tensions over trade flared this past spring.

Even with its holdings declining each month since midyear, China remains the top holder of U.S. Treasurys.

Beijing has let the yuan weaken moderately to support Chinese exports. But it "has repeatedly intervened in the currency market to prevent a sharp depreciation," a trader at a major bank said.

The currency neared the psychologically significant level of 7 yuan to the dollar toward the end of October. To counter criticism by the Trump administration that China is devaluing its currency, Beijing had to intervene to prop the yuan up.

China's yuan-buying likely amounted to 100 billion yuan ($14.5 billion) each in September and October, estimates based on People's Bank of China data show. In November, the intervention appears to have been between 50 billion yen and 60 billion yuan.

The Dec. 1 meeting by Chinese President Xi Jinping and U.S. President Donald Trump yielded a 90-day cease-fire in the trade war, leading Washington to hold off on plans to raise a retaliatory tariff on Chinese imports on Jan. 1. The yuan has since stabilized around 6.9 against the dollar.

China considered in early 2018 slowing or halting Treasury purchases, according to media reports. Asked in March about the possibility of a reduction in the context of the trade war, Chinese Ambassador to the U.S. Cui Tiankai said Beijing was "looking at all options."

The Office of the U.S. Trade Representative is threatening to raise the retaliatory tariff on March 2 if negotiations fail to yield an agreement. Xi's government, for its part, cannot afford to appear weak ahead of the National People's Congress session slated to open soon after. Beijing may yet wield the Treasury purchases as a bargaining chip with Washington.

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