why will military tensions with the us cause sell off of us companies in a way that would help China

the cics still own a lot of us companies, just not as much as they used to I agree that the currency sell-off is one of the big reasons The other is that they are diversifying out of U S companies and into other assets Also, they are diversifying out of Us stocks and into other asset classes, especially Us bonds If the yuan is not the world reserve currency, we'll get a lot more of that But if the yuan becomes the reserve currency, then we'll see more of this: the cics still own a lot of us companies, just not as much as they used to But if the yuan becomes the reserve currency, then we'll see more of this Why will China sell off of bonds cause inflation of the yuan and treasury notes? The answer is that China’€™s holdings of us debt are driven by China’s own capital flight and the desire to balance its books For example, should the value of the dollar increase in China’€™s trading partners€™ currencies, China’€™s exports fall, causing a capital outflow The government can choose to print the money to make up for the lost revenue, thus fueling inflation, or it can sell off treasury notes to make up for the lost revenue At the same time, China’€™s holdings of us debt are driven by the policies of the United States If the us Government inflates the currency, other countries will inflate their currencies to maintain their competitiveness If the us Government continues to run deficits and borrow, other countries will follow suit This drives up the value of the dollar on the foreign exchange markets China’s exports rise, demand for its currency rises, and China must print currency to keep up with the demand However, China has already been printing currency to keep up with the demand Therefore, it has had to sell off some of its treasury notes to keep the exchange rate from soaring too high The sell off of us Treasury notes is the driving force behind the decline in the value of the dollar What’€™s the implication of this for us? First, the us Government should be on the horns of a dilemma If it does not act to restore confidence in the value of the dollar, it will lose its reserve currency status This will cause the dollar to plunge in value That would make imports more expensive, causing the trade deficit to expand That would cause the dollar to plummet further However, if the us Government does act to restore confidence in the value of the dollar, it would be reducing the value of the us debt, which is also held by the public This would drive up interest rates and force the us Government to reduce its spending to compensate for the rise in interest rates This would cause the economy to contract further, making the us debt burden even higher