The Wall Street Journal reports China (and several other central banks) are selling U.S. Treasury bonds, after long being major buyers thereof. WSJ attributes this behavior to economic factors, and of course they may be correct.
Another possible interpretation of this behavior is an anticipation of military confrontations in the South and East China Seas. Should the U.S. and China get eyeball-to-eyeball over the Spratleys or Senkakus, or wherever, the U.S. could repudiate those portions of its debt held by China, stop making payments on or redeeming them.
Suppose China sees military confrontation as a realistic possibility. They could lose a substantial fraction of the wealth they have acquired as the world's premier manufacturing nation, wealth they have "parked" in U.S. Treasuries.
Under those circumstances China might well attempt to hold less U.S. debt. They would thereby lessen their risk and our economic leverage upon them.
