Why won't China reduce its exposure to the greenback after all this talk of decoupling?
Decoupling? Their entire economy is based on exports. If they fix that then we'll talk decoupling.
Why don't they diversify their reserves away from the US Dollar. Because they can't. Their ideologues really want too, but it's very hard to do when you are holding trillions of greenbacks and accumulating more every year.
The US is China's largest trading partner. In 2022 U.S market accounted for 16.2% of all of China's exports($583 Billion). This huge surplus in trade China runs with the US is a double sided sword for both countries. It means they are flooded with all this U.S. money annually in greenbacks.
Typically in a more balanced trade relationship China would turn around and purchase U.S. products with that money. For various reasons, they aren't spending those dollars but holding onto them. Really doesn't matter.
So here is the problem in trying to dispose of them. No one in the world will value US dollars more than the U.S. So in order to receive full value China or anyone china might transfer those dollars too must spend them in the U.S. They can buy companies, real-estate, US-bonds, or products. It all works to the U.S.'s benefit.
Yes in economics short turn uncertainty is a huge problem, and Yes China could dump massive US dollars on the market at a huge loss to themselves and cause some problems for the U.S that way. The value of the dollar would fall, making U.S imports more expensive and U.S. exports cheaper. This is a bit like stabbing your opponent through your own chest.
It would be a short term problem for the U.S. it would be a catastrophe for China. Such a move would cost them a significant percentage of the value of those dollars; still let's go with that for a moment. Whoever purchased the dollars from China likely at a huge savings, would still be faced with the same problem. In order to get full value for those dollars they would still have to repatriate them to the U.S. It would be like taking a blow torch to a sizeable percentage of your countries hard currency reserves. Let's also not forget China's total municipal and national debt is like 250% of GDP. They're not in any position to be bond firing their reserves. Something I'm certain their economists are explaining to their ideologs.
As long as China favors an export driven economy, they will have a hard time moving away from the greenback. This and their proclivity to hoard dollars work against any such move. If they did decide to responsible dispose of dollars, That's even better for the U.S. Buy lots of stuff the U.S. has to sell, great. Of coarse they still have that 16% of their exports come to the US and are paid for by dollars.. eliminating the trade deficit also works for the US, and would certainly reduce China's exposure to the greenback. That would be great too for everybody, that's how trade is supposed to work.