Beijing will not arm the assets of the US Treasury

China has other "weapons" in its commercial battle with the United States – and selling its badets to the US Treasury will not be one of them, said Richard McGregor, senior researcher at the Lowy Institute think tank.

As trade tensions between the two countries intensified in March, Beijing has reduced its holdings of US debt to the fastest pace of about two years.

This decision fueled concerns that China, the largest foreign owner of US treasuries, could use the so-called "nuclear option" – the possibility of selling its treasury bonds and triggering a surge in interest rates that would hurt the American economy.

"Arming" US Treasury badets has always been a "non-partisan" for Beijing, McGregor said.

"China's current account deficit is less than 1 percent of GDP," he said. "If China were to do something for the US dollar, it would obviously hurt the Chinese holdings of the US dollar, and I do not think either that they want to see the disruptive effect that will have."

McGregor said that China had other options in the commercial battle.

"China can manage its economy, manage its entry into its economy," he said.

Beijing can manage the access of foreigners to the Chinese economy and decide to strengthen the presence of foreign companies or deny them access.

More importantly, he said, people should look at how Chinese private companies are making their way through this difficult period, as the consequences of their success will have a major impact on the Chinese economy.

"These are the big exporters, not the state companies," said McGregor, author of "Xi Jinping: The Backlash."

"I think what we have to watch for is how they manage or limit the damage, that is, if the trade war goes on, especially if we get a new set of rights. customs. "

Some of the largest Chinese companies by market capitalization are along the east coast of the country, including the technology conglomerate Tencent in Shenzhen, the technology giant Alibaba in Hangzhou and various commercial banks in the Shanghai area.

McGregor said the way some of these companies would emerge from the current crisis could give clues to the health of the world's second largest economy.

"What happens to private companies along the coast there, which is the real engine of the Chinese economy, could be seriously hurt," he said.

McGregor noted that personal relations between President Donald Trump and his Chinese counterpart Xi Jinping could worsen, which could hurt the already tense relations between the two largest economies in the world.

The US president pointed the finger at China when trade talks bogged down and said Beijing had not kept its commitments. This week, he also threatened to charge more tariffs on $ 325 billion worth of Chinese products.

"It's a good friend," Trump said Monday, referring to Xi. But he added, "I used to say that he was a good friend of mine, we are probably not that close now."

"But I must be for our country, it is for China and I am for the United States, and that is how it must be, and it should never have been allowed." said the president.

McGregor said the two leaders shared "a valuable relationship," adding that it was important for them to be able to discuss and accept temporary solutions, even though their leaders were "at war".

But now, he said, "if the personal relationship deteriorates, the personal relationship also deteriorates, it will only add extra weight to the relationship."

– Jeff Cox of CNBC contributed to this report.