The US Default Crisis Is Close To &Nbsp; China Is Hard To Find Alternatives To US Treasuries.

America's sovereign default crisis is imminent.

Reaching the United States

On the other side of the ocean, China is also worried.

As the largest creditor in the US, the total amount of treasury bonds held by China may be as high as 1 trillion and 500 billion US dollars.

Morgan Stanley Asia's non-executive chairman, Stephen Roach, said in July 28th that the US debt negotiations were deadlocked and "shocked" to the top officials of China's government. (Roach)

A senior Chinese policymaker said to him, "we understand politics, but your government continues to be astounded by the consequences."

When visiting Asia in July 25th, US Secretary of state Hilllary Clinton assured China that "I believe that Congress will reach an agreement on the debt ceiling and will cooperate with President Obama to improve our long-term.

In order to avoid default after August 2nd, the US Treasury has also begun to consider another key question: if there is not enough money to pay all the payments, what are the first guarantees?

According to Bloomberg's anonymous government sources, the US Treasury will give priority to creditors' interest to avoid default.

China continues to increase its holdings of US debt

The US Treasury report shows that the size of treasury bonds held by China in May this year amounted to US $1 trillion and 159 billion 800 million, an increase of US $7 billion 300 million compared to April.

China has increased its holdings of US $7 billion 600 million in April, and has actually increased its holdings of US Treasury bonds for two consecutive months.

Standard Chartered Bank said in a report that China's purchase of treasury bonds through the United Kingdom and Hongkong has been an open secret.

Therefore, the financial sector generally expects that China holds about US $1 trillion and 500 billion of US Treasury bonds.

Since the beginning of April this year, the three major rating agencies in the United States have repeatedly said they may downgrade the US sovereign rating.

China continues to increase its holdings in spite of the risk of downgrading US Treasury bonds. According to Andy Rothman, an analyst at CLSA, the relationship between us and China's treasury bonds is the ultimate global relationship, because if China sells U.S. Treasury bonds and triggering other investors to sell, China will take on bigger losses. "This is like a financial suicide."

In response to possible downgrades by the rating agencies, China's State Administration of foreign exchange responded on its website this month through self questioning and self answering.

The Security Council asks itself: can the holding of such a large amount of US Treasury bonds face ever greater risks in the face of the depreciation of the dollar and even the rise in US inflation?

Will the future be reduced to the US?

The answer they give is that the US Treasury bond is the credit reflection of the US government and an important investment type of domestic and international institutional investors in the United States.

Holding foreign exchange reserves as treasury bonds is a market investment behavior. According to the market situation, it is normal investment operation to increase or decrease holdings.

"We note the views expressed recently by Rating firm such as standard & Poor's on the sovereign debt rating of the United States, and hope that the US government will take effective measures to enhance the confidence of the international financial market and respect and safeguard the interests of investors," he said.

At present, Wall Street generally expects that the United States can reach an agreement at the last minute to avoid default, but even if the debt ceiling can be raised on time, the US Treasury bond rating may still be downgraded.

UBS said the US downgrade is inevitable.

Treasury bonds have always been a "safe haven" for funds, and there are different views on the trend after the downgrade.

A report from Nomura Securities shows that in the past, after the AAA government ratings were downgraded, there would be a brief slight drop, and then a sharp rise in time.

Selling will bring more losses.

Xia Bin, a member of the central bank's monetary policy committee, warned this month that China should speed up its diversification of foreign exchange reserves to hedge against the possibility of a long-term depreciation of the US dollar.

He cited some examples of diversification, saying that China has increased more Japanese government bonds and other non US assets in its external reserves.

Standard Chartered Bank reported that they found some new trends in the past few months. China's new foreign exchange reserves increased much more than the total purchases of treasury bonds by China, the United Kingdom and Hongkong, which means that China's new foreign exchange reserves finally failed to continue buying large-scale US Treasury bonds.

According to data from Japan's Ministry of finance, China has been buying Japanese government bonds on a large scale recently.

Chinese officials have also said many times that they will continue to buy eurozone debt to diversify their investments.

But because of China

A recent report by Fitch, a credit rating agency, said that in all AAA government bonds in the world, the size of US Treasuries and US institutional bonds is 11 trillion and 500 billion US dollars.

All other AAA government bonds, including Germany, Britain, France and Canada, are only 7 trillion and 400 billion US dollars.

Therefore, even if China wants to sell treasury bonds and buy other AAA government securities, it may not find enough supply.

Eswar Prasad, a former IMF chief economist, has nothing to say about China.