(Repeats item originally published earlier on May 28, no change to conten)
By Richard Leong
May 28 (Reuters) - The trade war between Beijing and Washington has stoked concern in financial markets that China might opt to weaponize its holdings of more than $1.1 trillion worth of U.S. Treasuries in retaliation for the tariffs the Trump administration has imposed on Chinese imports.
Often referred to as the "nuclear option," choosing to dump so large a pool of assets would likely destabilize world financial markets, drive interest rates higher and push tensions between the world's two largest economies into uncharted territory.
China has been slimming its Treasury securities portfolio for some time, but most analysts see an aggressive reduction of its holdings as a remote possibility at most. There is no evidence Beijing is seriously looking to flood markets with its U.S. bonds.
Here are some key points about China's Treasuries portfolio:
HOW MUCH U.S. DEBT DOES CHINA OWN?
About a decade ago, China overtook Japan as the largest foreign holder of U.S. government debt.
Its holdings stood at more than $1.12 trillion at the end of March, according to U.S. Treasury department data. Japan is a close second with nearly $1.08 trillion.
China's holdings peaked in late 2013 at nearly $1.32 trillion and have come down by about 15% since then. In March they were the lowest in about two years.
Its share of the Treasury market has fallen even faster, due to the steady issuance of U.S. debt required to finance the growing federal budget deficit.
The world's second biggest economy owns about 7% of the $16.18 trillion of U.S. public debt outstanding, its lowest share in 14 years, and down from a peak of 14% in 2011. Still, its slice of the pie is exceeded only by the U.S. Federal Reserve, which owns $2.15 trillion of Treasuries, or 13.5% of the market.
Treasury issuance is expected to keep accelerating following a massive tax cut enacted in December 2017, so China's share of the market will likely drop even further.
WHY DOES CHINA OWN SO MUCH U.S. DEBT?
As a net exporter to the United States and the rest of the world, China has the world's largest stash of foreign-exchange reserves at more than $3 trillion. Much of that is denominated in U.S. dollars accumulated through its persistent trade surplus with the United States since the early 1990s.
A natural place for China to park a lot of those greenbacks is the U.S. Treasury market, which is by far the largest and most liquid pool of safe assets in the world.
Also, since the financial crisis of 2007-2009, U.S. Treasuries have consistently yielded more than bonds issued by other large developed economies such as Japan and Germany, which has been another lure.