China has done little to de-dollarise its economy despite a push to resist Washington in a tumultuous trade war, and as an exporting nation, it is unlikely to back away from American currency holdings in the short term, according to an Oxford Economics report.
Most available data delinks China from recent “volatility” in US bond markets, the Monday report said, referring to movement in April as US President Donald Trump unleashed tariffs around the world and hit China especially hard.
“Even if [Chinese] authorities wanted to quickly diversify away from the dollar, few options of high-grade and liquid foreign assets exist wherein to park China’s US$3.2 trillion official foreign exchange reserves,” the report said.
“China’s export orientation means that it still requires substantial dollar assets,” the UK-based advisory firm added. “In response to trade tensions, China is likely better off weakening the [yuan] than selling US assets, which is why a disruptive sale of Chinese US Treasury holdings is not likely, in our view.”
A weaker yuan allows exporters to buy more of the Chinese currency with US dollars earned from sales overseas.
Some market commentaries have raised the spectre of China selling US Treasury-issued assets in response to the trade war.
