In the wake of the 2024 U.S. presidential election, where Donald Trump emerged victorious, China's economic and diplomatic strategies are increasingly focused on navigating the complexities of a leader known for his unpredictable approach. Analysts describe Trump’s potential presidency as akin to 'face-changing' in Chinese opera, where he may alternate between deal-making and confrontation [e87cd28a]. This unpredictability raises concerns among Chinese officials, particularly regarding Trump's national security team, which is perceived to have a Cold War mindset [e87cd28a].
China currently holds approximately $774.6 billion in U.S. Treasury securities, making it the second-largest holder after Japan. With a total of around $3.261 trillion in foreign exchange reserves, there are growing fears in Beijing about the safety of these assets, especially in light of potential U.S. financial sanctions that could arise from a Trump administration [6286666d][9be1182b].
Zhang Ming, a deputy director at the Chinese Academy of Social Sciences, has emphasized the need for China to diversify its forex reserves to mitigate risks associated with U.S. sanctions. Yang Siyao from Tsinghua University has echoed these concerns, warning that the risks of holding U.S. assets are likely to escalate under Trump's leadership [6286666d].
China's economic growth has slowed to 4.6% GDP in the third quarter of 2024, prompting Xi Jinping to implement strategies that include economic stimulus and military modernization [e87cd28a]. The potential weakening of U.S. deterrence in the Taiwan Strait under Trump could have significant implications for regional security dynamics, particularly concerning Japan, South Korea, India, and Pakistan [e87cd28a].
In response to these challenges, China's sovereign wealth fund, the China Investment Corporation (CIC), is reportedly shifting a significant portion of its investments towards alternative assets, seeking safer havens amid the uncertainties of U.S. economic policies [6286666d]. Furthermore, analysts from the Official Monetary and Financial Institutions Forum (OMFIF) predict that the share of the U.S. dollar in global reserves could decline to between 40% and 45% by 2050, as countries like China actively promote the yuan to reduce reliance on the dollar [6286666d].
Interestingly, some Chinese elites have expressed a preference for Kamala Harris over Trump, citing her predictability as a more favorable trait for international relations [e87cd28a]. As these developments unfold, the implications for China's foreign reserves and its broader economic strategy are significant, with the potential for increased volatility in U.S. financial markets prompting China to accelerate its efforts to diversify its investments and bolster the yuan's global standing [9be1182b][6286666d].