What is the practical significance of China owning 800 billion US Treasury bonds?

In the past few years, the China administration has been buying US Treasury bonds, but American investors have been reducing their holdings. For example, 10 years ago, the total amount of US Treasury bonds was about 3 trillion, of which more than 70%, that is, more than 2 trillion, was owned by American investors; But now, the total amount of US Treasury bonds has increased to 4 trillion yuan, but only one third of them are held by local investors, and the proportion is declining. The reason why Americans don't buy US Treasury bonds is simple, that is, interest rates are unattractive.

As for the China government's purchase of US Treasury bonds, it does not pay attention to the interest rate of investment, but hopes to stabilize the exchange rate of its currency against the US dollar to protect the country's export industry. There are two main ways to prevent RMB from appreciating. One is to sell RMB in the market or buy dollars in large quantities. This method can't last for a long time, and the other is to buy a lot of American debt every year to prevent the RMB exchange rate from rising.

Experts believe that under the current financial environment in China, buying US Treasury bonds is still the best choice. Foreign exchange reserves come from foreign direct investment, foreign trade surplus and international hot money entering China. By the end of 2005, China's foreign exchange reserves exceeded US$ 800 billion, and China's net capital outflow has continued for 10 years. /kloc-since 0/0, foreign countries have made net use of China funds 1.72 trillion yuan. China is like a "transit station" for international capital flows: on the one hand, the continuous influx of foreign capital earns high returns and pushes up the balance of foreign exchange reserves; On the one hand, China's capital has been flowing out for many years, and the return on investment is low. Song Guoqing, a professor at the China Center for Economic Research of Peking University, called this phenomenon "the flowers fall from the spring river to the west river". Liu Weiming, chief foreign exchange analyst of China Merchants Bank, pointed out that the net outflow of funds from China is caused by huge foreign exchange reserves, which does not mean that domestic enterprises have too much money to spend. This is not a paradox. Liu Weiming explained that under the current foreign exchange system, foreign funds entering China must be converted into RMB, and foreign exchange is bought by the central bank to form foreign exchange reserves. At present, China's foreign exchange reserves are mainly used to buy US Treasury bonds, and the yield of 10 US Treasury bonds is less than 5%. Compared with the high return of international capital entering China, the return of foreign exchange reserve investment in China is quite low. This is a helpless choice.

In this regard, the central bank's solution is to step up research and establish a flexible RMB exchange rate formation mechanism to meet the reasonable foreign exchange demand of enterprises and individuals and reduce the net outflow of domestic capital. We can't demand the return of foreign exchange reserves on foreign investment. Investing in U.S. Treasury bonds can avoid risks, although it sacrifices some income. Due to the low ability of China's domestic financial system to cope with risks, there is a problem of exchange of risks and benefits. U.S. Treasury bonds are low-risk and highly liquid. Compared with the euro zone and the yen zone, the economy of the dollar zone is still in a strong position. In this context, it is not difficult to understand the purchase of US debt.

To buy or not to buy is in a dilemma.

Now, China is caught in a "dilemma": if it continues to buy US dollar treasury bonds, it will be a very stupid thing from an economic point of view, because the return rate of US treasury bonds is low, only slightly better than Japanese debt; However, if we stop buying US Treasury bonds or even sell them, the dollar will further depreciate and China will suffer heavy losses, that is, the so-called "buy badly, don't buy badly"!

Because China bought a lot of American debt, if the dollar depreciates, it will lose a lot on the books, and with the increase of interest rate, the price of debt exchange will definitely fall further. According to the Financial Times, if the RMB appreciates by 10%, the China government will suffer a book capital loss of $50 billion. If the US interest rate rises by 2% again, China will lose another $30 billion to $50 billion, with a total loss of $80 billion to 1000 billion. Of course, the export losses caused by the falling exchange rate of the US dollar have not been counted. In this case, the China government has no choice.

unstable equilibrium

So the present situation is an "unstable balance". Although Americans can still eat, drink and be merry every day, this balance is worrying. The current deficit in the United States is expanding. In 2005, the current account deficit reached a record high of 800 billion US dollars, an increase of 34% over 2004. In other words, the United States will absorb almost 3 billion yuan every day to fill this deficit.

So, the world is so wonderful: China and Japan are holding hundreds of billions of real money, and they keep buying dollar assets to finance American interest rates, and then Americans mortgage the oversubscribed assets to buy electrical appliances made in China and Japan. This is a funny joke, just like you lent most of your fortune to a debtor. Because there is too much money lent out, you should scrimp and save every day, and give the money saved to the debtor to enjoy. I hope he will have a good time every day and not catch a cold, otherwise he will die together! Because if everyone stops supporting this debtor, the American government will go bankrupt in a very short time, and the disaster will be more serious than World War II.