China's Exit Plan

China sells US Treasury bills

China sold $34bn (£21.5bn) worth of US government bonds in December, raising fears that ­Beijing is using its financial ­muscle to signal that it has lost confidence in American economic policy.

US treasury figures for the period ending in December 2009 show that, following the sale, China is no longer the largest overseas holder of US treasury bonds. Beijing ended the year sitting on $755.4bn worth of US government debt, compared to Japan's $768.8bn.

Since the sub-prime crisis that began on Main Street USA grew to engulf the global economy, China's leaders have repeatedly expressed concerns about US policy. December's $34bn sell-off made only a tiny dent in Beijing's total holdings of US assets, which amount to well over $1tn when stakes in American companies, as well as treasury bills, are taken into account.

But the news intensified concerns about China's appetite for bankrolling ever-widening American deficits. Premier Wen Jiabao told reporters last year: "We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I'm a little bit worried."

"Dumping treasuries will also entail the problem of what to buy in return – definitely not euro or yen assets at the moment."


China is gradually losing faith in US fiscal and monetary policy.

The dilemma for the Chinese is what can replace treasuries?

They have given indications periodically about moving more of their holdings into hard assets such as copper & gold mines and oil companies. China has also shown increasing interest in gold bullion purchases with one report stating they have a goal of 10,000 tonnes - which would make they the country will the largest above ground gold reserves.

While China's dependence on America's market for its exports is substantial, the question is at what point do the Chinese consider their treasury holdings "a sunk cost" and stop buying?