4 Big Reasons Why China Holds U.S. Treasury Bonds

Since economic reform in the 1980s, China keeps buying U.S. Treasury Bonds for more than 3 decades. What’s more, the US trade deficit with China is the largest in the world (about 30 billion per month) which is usually regarded as a sign of global economic imbalance (census.gov 2016). While China’s huge holding of U.S. securities is widely evaluated as a nuclear bomb, below are the big reasons behind the long-term national behavior:-

Why China devalues the Chinese yuan (renminbi)

In August 2015, the People’s Bank of China announced a surprising decision to depreciate the Chinese Yuan by 2% against the U.S. dollar. The central bank said in a statement that “The reform of Chinese Yuan exchange rate formation mechanism will continued to be pushed forward with a market orientation, the market powers will play a bigger role in exchange rate determination to assist the balancing of international payments” (cnn.com 2015).

10 Reasons Why China is Successful and Efficient

“Made in China” really doesn’t mean what it used to be, quality of Chinese-made products is rising fast. In addition, China is moving very fast in technological innovation. For example, in the past five years, China saw a rapid growth in its IP (invention patent) community, reflected by its innovative companies and the whole society, according to WIPO report (wipo.int 2015). Since opening up its economy and market in the 1980s, China has been successful in growing its economy and utilizing its demographic bonus efficiently.

Small and micro enterprises are temporarily exempt from VAT and business tax in China

According to the State Administration of Taxation, Ministry of Finance, to further support the development of small and micro enterprises, the State Council approved that August 1, 2013 onwards, the small-scale VAT taxpayers with sales of businesses not exceeding 20,000 yuan will be temporarily exempt from VAT; business tax taxpayers (corporate or enterprise units) with monthly turnover not exceeding 20,000 yuan can be exempt from sales tax.

“Midwest Industrial Catalogue for Foreign Investment in China (2013 Amendment)” -9/22: Hubei Province

Foreign investment projects belonging to following industries in Hubei Province enjoy preferential policies:

“Midwest Industrial Catalogue for Foreign Investment in China (2013 Amendment)” -8/22: Henan Province

Foreign investment projects belonging to following industries in Henan Province enjoy preferential policies:

“Midwest Industrial Catalogue for Foreign Investment in China (2013 Amendment)” -7/22: Jiangxi Province

Foreign investment projects belonging to following industries in Jiangxi Province enjoy preferential policies: