China dumps more US debt, buys other assets as Trump targets Powell

China trimmed its holdings of US Treasuries in November to the lowest level since 2008, diverging from a global trend that saw total foreign ownership of the debt instruments hit a record high.\nAnalysts say the prospect of a politicised Federal Reserve chairmanship under Donald Trump’s presidency has deepened Beijing’s concerns over its exposure to American debt, with more cuts expected.\nBeijing’s stockpile fell to US$682.6 billion in November, down from US$688.7 billion in October, according to US Treasury Department data released on Thursday.\nThat marks the lowest level since September 2008 and a nearly 10 per cent drop since last January, according to financial data provider Wind.\nShao Yu, chief economist with the Sci-tech Innovation Management Research Centre at Fudan University, said Beijing appeared set to keep reducing its stockpile amid the growing risk of US debt unsustainability.\n“The massive accumulation of debt resembles a Ponzi scheme, where larger volumes of new debt are used to replace the old. China doesn’t want to play this game any more,” he said.\nChina’s reduction also comes amid heightened uncertainty over the future of the Federal Reserve, whose independence has come under threat during the Trump administration.\nFed chair Jerome Powell, whose term expires in May, revealed on Sunday that the administration had launched a criminal investigation into him. Powell said he believed the probe was a consequence of his refusal to set interest rates according to the president’s preferences.\n\n\nTrump, who could soon announce his pick for the next Fed chair, claimed to have no knowledge of the investigation.\n“His appointee will undoubtedly be more compliant,” Shao said. “This implies that, in line with Trump’s directives, there may be a push for rapid interest rate cuts and the initiation of large-scale quantitative easing to support infrastructure, including the artificial intelligence bubble.”\nAgainst this backdrop, Shao noted that Beijing would probably continue adjusting its strategic reserve allocations towards other assets, such as gold, non-US currencies and overseas equity investments.\nChina’s holdings of US Treasury bonds have been on a gradual, albeit uneven, retreat that began during Trump’s first term. In March, China slipped to third place among foreign Treasury holders, behind Japan and the United Kingdom.\nChina continued buying gold for the 14th straight month in December, adding 30,000 ounces to bring its total stock to 74.15 million ounces, official data showed.\nOther countries, however, continued to buy US debt in November, with total foreign holdings rising to US$9.36 trillion – the highest level on record – from US$9.24 trillion in October.\nJapan and the UK, the two largest foreign owners of US Treasuries, increased their stockpiles during the month. Japan’s holdings rose by US$2.6 billion to US$1.2 trillion, while the UK’s pool rose by US$10.6 billion to US$888.5 billion.\nThe fourth-largest holder, Belgium, also raised its holdings by US$12.6 billion to US$481 billion. And Canadian holdings saw a US$53.1 billion surge to US$472.2 billion.\n