China and others buy US Treasury securities primarily to support the dollar vs their own currencies, and thereby drive exports to the US, and not because they are looking for safe investments per se. That is, it’s a consequence of their drive for ‘competitiveness’.
And with no Treasury securities China would be forced to buy state debt, corporate debt, equities, etc. which is highly problematic for them for a variety of reasons.
Note this is what they face in the euro zone where they’ve become holders of the debt of the national govts to support the euro vs the yuan and drive exports to that region. And I’m sure they are feeling a lot more insecure about their holdings of that paper vs US Treasury securities.
So their choice is to either keep buying US financial assets or give up their export market.
And their exporters are most often very powerful, single minded individuals, who play the game hard to further their interests, to say the least.
August 6 (Bloomberg) — China bluntly criticized the US on Saturday one day after the superpower’s credit rating was downgraded, saying the “good old days” of borrowing were over.
Standard & Poor’s cut the U.S. long-term credit rating from top-tier AAA by a notch to AA-plus on Friday over concerns about the nation’s budget deficits and climbing debt burden.
“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” China’s official Xinhua news agency said in a commentary.