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China's vice finance minister dismisses talk of selling US Treasurys in response to tariffs

  • China's government is not considering reducing its U.S. Treasury bond holdings anytime soon, Vice Finance Minister Zhu Guangyao told CNBC Wednesday.
  • Some market watchers have voiced fears that Beijing could reduce its Treasury purchases in response to the White House's trade tariffs, which would send interest rates soaring.
  • China is the largest foreign holder of U.S. debt, which is rapidly mounting amid massive government stimulus programs.
Chinese President Xi Jinping and Chinese Premier Li Keqiang at The Great Hall of People on March 3, 2018 in Beijing, China.
Lintao Zhang | Pool | Getty Images
Chinese President Xi Jinping and Chinese Premier Li Keqiang at The Great Hall of People on March 3, 2018 in Beijing, China.

As the trade conflict between the world's two largest economies escalates and China and the U.S. fire at one another with sharp import tariffs, some have raised fears of another powerful tool of Chinese retaliation: its American debt holdings.

But China's government is not considering reducing its U.S. Treasury bond holdings anytime soon, Vice Finance Minister Zhu Guangyao told CNBC's Eunice Yoon Wednesday.

"China is a responsible international investor," Zhu said, making reference to Chinese Premier Li Keqiang, who said during the country's latest Monetary Policy Committee meeting that reducing U.S. Treasury holdings was not on the table. "What the premier said is our policy."

China is the largest foreign holder of U.S. debt, which is rapidly mounting amid massive government stimulus programs. Beijing holds $1.17 trillion in Treasury bonds, according to official stats, helping to finance the growing budget deficit. If it were to halt its bond purchases, government interest rates could potentially skyrocket, as well as force borrowing rates up for consumers and companies.

Speculation over the Chinese-owned debt has abounded thanks to some mixed messages. On Tuesday night, Chinese ambassador to the U.S. Cui Tiankai responded to a question on Treasury bond purchases simply by saying that, "If the other side makes a wrong choice, we have no alternative but to fight back."

But the vice finance minister's words would appear to put that speculation to rest.

"Both in domestic and international law, China is a responsible investor," Zhu said. "So that's what Premier Li Keqiang said, the real policy of (the) Chinese government to the U.S. Treasury investment."

China announced sweeping tariffs on Wednesday on 106 different American products amounting to $50 billion annually. These include levies of 25 percent on major U.S. exports like whiskey, soybeans and automobiles.

The move came less than 24 hours after President Donald Trump unveiled a list of Chinese imports that his administration aims to target as part of a crackdown on what the president deems unfair trade practices.

These retaliatory strikes are just the latest in an intensifying tit-for-tat campaign first sparked by the Trump administration's decision to implement large tariffs on all steel and aluminum imports in early March.

Markets have reacted badly to the news, with fears of a full-blown trade war sending all major U.S. indexes back into correction mode — down 10 percent from recent highs — with all 30 Dow stocks and all 11 S&P groups lower.

—CNBC's Sam Meredith contributed to this report.