China struggling to wean itself off US dollar assets despite financial de-risking calls
- China is still the second-largest foreign investor in US Treasuries despite seeing its holdings fall to a 14-year-low of US$821.8 billion in July
- But it has remained a ‘net purchaser’ of long-term securities since the start of 2021 despite calls to de-risk
China has been holding onto the US dollar rather than dumping assets despite ongoing calls for de-risking, with the shrinking size of its US Treasuries due to the steep fall in their value, analysts said.
Even with Beijing and Washington sparring on multiple fronts from trade to technology, China is still the second-largest foreign investor in US Treasuries after Japan, remaining a “net buyer” of US dollar assets, according to a report by British research firm Capital Economics.
There have been calls from domestic scholars to de-risk from Washington’s financial hegemony, but the fact that the world’s second-largest economy cannot wean itself off the US dollar highlights China’s lack of viable alternatives, according to analysts.
“Beijing appears to be keeping about as much of its foreign portfolio in dollar assets and this underlines that it doesn’t have good options to diversify,” said Mark Williams, chief Asia economist at Capital Economics.