This is irrelevant for this. They are deficit spending in their local currency. Their US dollars are going to a massive frenzy of commodities import. They are just diversifying their reserves, less US bonds, more physical goods like copper, coal, gold, etc.
> is irrelevant for this. They are deficit spending in their local currency
It's incredibly relevant for balance of payments [1]! This is international banking 101.
If they want a stable currency while deficit spending and maintaining monetary sovereignty, they need to sell assets and/or clamp down on capital flows [2].
If selling, it will mostly be dollars, because that's what folks want and what they have. That's what they're doing.
> They are just diversifying their reserves
No, their reserves are going down. They are also diversifying. But anything other than them net selling dollar assets would be incrediby weird.
Of course they're net reducing the dollar assets they hold. But you don't have to sell your bonds to do that. You can just let your current bonds mature and not roll them. That way there's no big selloff to spook the market.
> you don't have to sell your bonds to do that. You can just let your current bonds mature and not roll them
They're selling like $18bn a month [1]. That is 2% of the daily trading volume [2]. Until recently, the Fed was running off 4x as much [3]. (It's still, at $40bn per month, $25bn of which are Treasuries, running off more than China is selling.)
China is diversifying. But they're doing so about as cautiously as one could.
