(Bloomberg) -- China needs to further reduce its Treasuries holdings, in part to lessen the potential leverage of Washington over its Asian rival, according to a paper published by a Chinese state think tank.

The vast American assets that China’s authorities hold are “increasingly becoming hostages — hindering us from safeguarding our national sovereignty,” Di Dongsheng, vice-dean of Renmin University’s School of International Studies, wrote in a piece published by a China Institutes of Contemporary International Relations journal. Di also referenced President Xi Jinping’s emphasis on preserving “territorial integrity amid changes unseen in 100 years” in the global backdrop.

Di pointed to the US freezing of Russian assets following Moscow’s full-blown invasion of Ukraine in 2022 as part of a long pattern of American actions that pose challenges for foreign investors. He cited US seizure of German properties during World War I, along with treatment of Japanese assets during World War II along with large-scale imprisonment of Japanese Americans as all proving “the US’s commitment to respect for property rights and human rights protection is merely a myth.”

While US Treasuries today yield notably more than their Chinese counterparts, Di also argued that “yields on US government bonds have been depressed for a long time,” and that returns China gets are less than what American investors get in China.

China’s holdings of Treasuries have been trending down for several years, hitting the lowest level since 2009 last October. It remains the second-largest foreign owner of Treasury securities, after Japan.

Yuan’s Strength

Many emerging markets boosted their holdings of Treasuries as a safeguard in case of global financial turbulence. China for years also bought up the securities as it purchased dollars to hold down its exchange rate — a tactic critics said was designed to protect the competitiveness of Chinese exports.

Di argued that China now doesn’t need to keep massive foreign reserves in place, thanks to structural economic reforms at home.

“Increased volatility in the exchange rate, or a moderate overvaluation of the yuan, will not have a major impact on China’s exports,” Di wrote. Low-end Chinese manufacturing has been replaced by mid-to-high-end products such as electric vehicles, batteries, drones and new energy products that are less sensitive to exchange rate levels, he said.

Di also viewed large dollar reserves as unneccesary in the event of upward pressure from the US currency against China’s yuan. “China’s strong export competitiveness means that the exchange rate will automatically float up soon,” he wrote.

Di’s comments received global attention in 2020, when Fox News at the time cited a speech of his that alleged Chinese influence over then-President-elect Joe Biden. His speech was later removed from China’s social media platforms.

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