Should China cut US Treasury Holdings?  Yuhua Zhang writes;  In February, China cut US treasury securities holdings by $15.4 billion to $1223.7 billion, which is the sixth consecutive month that China has reduced US treasuries and falls to the lowest US debt holdings since January 2013. Although China is no longer US largest creditor, the further cut in US treasury holdings would still be a wise strategy to China.

In all, cutting US treasury securities holdings is a reasonable choice for China during the period of economic reform because China will encounter economic slowdown for its “new normal” and diversifying its economy.

However, some economists are anxious that the strategy may bring negative effect on US economy.

On the one hand, in comparison with US treasury securities holdlings by top foreign creditors during the past year, the amount of treasuries sold by China is not large enough to disturb the market, and some other top US foreign creditors such as Japan are still willing to increase their holdings. In other words, it is quite limited effect on US treasury market for China (or some other governments’ authorities) to pursue diversification out of US treasury securities.

Instead of facing problems, the US dollar strength and current yield advantage still guarantee high attractiveness and liquidity for US treasury securities market, which positive trend is expected to continue in the future.