China is purchasing U.S. Bonds “every day,” though the nation has little choice in the matter. China makes its profit via exports (up 40 percent in February). Exports provide China with a tremendous amount of foreign capital, the majority of it being in U.S. dollars.
With that money, China invests in the leading American companies but too many investments could be risky leaving China store their money in US bonds. Should they decide against buying the bonds, America would encounter major difficulties.
This puts America in a vulnerable position with China, one that has consistently kept the administration from being more invasive with the nations global business policies and monetary controls.
The threat of change appears to be unlikely right now though, after Chinese officials announced that the nation’s $2.4 trillion in foreign reserves will be maintained. China’s holdings of US debt are normal and unlikely be tampered with or reduced for political reasons.
Still the question remains that if the dollar takes a major dive, will China begin shedding U.S. bonds in favor of something more stable?
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