Recently, two coincidental events have sparked quite a bit of speculation.

Firstly, the United States has dispatched a high-level delegation of officials to visit China, with a focus on financial work as the main topic of discussion.

Secondly, the latest U.S. Treasury debt data reveals that China's holdings of U.S. debt have increased by 11.9 billion.

Does this suggest that President Biden has softened his stance, and China is willing to continue lending money to the United States?

The U.S. debt ceiling is continuously rising, with an economic crisis looming. At this critical juncture, the U.S. has sent a high-level delegation to China, reportedly led by Deputy Treasury Secretary Wally Adeyemo, and includes officials from the Securities and Exchange Commission and the U.S. central bank.

They will hold a financial working group meeting with Chinese officials to discuss topics such as financial stability.

However, economic experts believe that the continuous deterioration of the U.S. fiscal situation, coupled with the rising debt ceiling, indicates that the true purpose of the U.S. Treasury officials' visit to China is to encourage China to increase its purchase of U.S. Treasury bonds and lend money to help the U.S. navigate the current economic crisis.

Currently, the U.S. debt ceiling has already surpassed 35 trillion U.S. dollars, which is very close to the 35.4 trillion U.S. dollars limit set by Congress. It is possible that by the end of this year, this debt limit will be completely exhausted.

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Regardless of who becomes the next President of the United States, they may face the embarrassing situation of a government shutdown as soon as they take office.

The only option for the U.S. government is to continue to delay, filling the fiscal deficit by issuing more Treasury bonds, which is also the only solution that U.S. Treasury Secretary Janet Yellen can think of.However, the current situation is highly unfavorable for Yellen's plan. Major global economies, including China, are reducing their holdings of U.S. Treasuries, and even the United States' core ally, Japan, recently sold off tens of billions of U.S. Treasuries to stabilize its own exchange rate.

Therefore, the U.S. government has turned its attention to China, hoping that China, once the largest overseas holder of U.S. Treasuries, can start increasing its holdings again.

The United States wants to borrow money from China mainly for the following reasons: First, China has a foreign exchange reserve of $3.25 trillion, which gives it the capacity to purchase U.S. Treasuries. Second, as the world's largest trading entity, China's trade surplus this year has already exceeded $500 billion, making it entirely possible to buy U.S. Treasuries.

Coincidentally, the report published by the U.S. Department of the Treasury indeed shows that China actually increased its holdings of U.S. Treasuries by $11.9 billion in June.

Perhaps more surprisingly, U.S. Treasuries continued to rise afterward, which means that this increase was profitable.

In the past few months, China's operations on U.S. Treasuries have become more flexible. From the initial firm reduction to later increasing and decreasing at times.

In April 2024, China slightly increased its holdings of U.S. Treasuries, and then slightly reduced them in May. However, in June, China bought an additional $11.9 billion of U.S. Treasuries, bringing the total holdings to $780.2 billion.

In fact, not all of this $11.9 billion was actively purchased.

According to the detailed data provided by the TIC report, in June 2024, China actively net purchased $6.392 billion, and the other $5.5 billion was due to the increase in the market value caused by the rise in U.S. Treasury prices.

From May to July of this year, the yield on ten-year U.S. Treasuries has fallen for three consecutive months, and it has also fallen from early August to the present, which means that U.S. Treasury prices have risen for three and a half months.Additionally, it is almost certain that the Federal Reserve will announce a rate cut in September 2024, and a loose monetary environment will continue to drive up bond prices for the long term.

It is foreseeable that in the second half of the year and for an even longer period, U.S. Treasury prices are expected to return to an upward trend.

Thus, it can be seen that as long as there is no significant active selling in the second half of the year, the U.S. Treasury bonds held by China could potentially continue to show an increase on paper.