China Reduces US Debt Holdings to 16-Year Low: Treasury

Udumbara Udumbara
Jun 21, 2025 - 10:07 Updated: Jun 21, 2025 - 01:19
0
China Reduces US Debt Holdings to 16-Year Low: Treasury
.

China reduced its exposure to U.S. Treasury securities to the lowest level in more than 16 years, continuing the decade-long trend of trimming holdings of American debt.

According to new data released by the Treasury Department, Chinese stockpiles declined by about $8 billion, to $757.2 billion in April, from $765.4 billion in March. This is also down about $13 billion from a year earlier.

After years of being the world’s largest holder of U.S. debt, China now sits in third place behind Japan ($1.134 trillion) and the United Kingdom ($807 billion).

However, while Treasury data indicate a long-term downward trend in China’s U.S. Treasury holdings, strategists at JPMorgan Chase argue that the numbers are misleading.

“China wants to show declining holdings because it’s not politically convenient to show that they are a) continuing to build their reserves or b) plowing excess savings into the sovereign debt of their main geopolitical rival,” they said in an April 25 research note.
Instead, they say, China has been disguising its holdings through “shadow reserves” that are off the balance sheet of the People’s Bank of China or those purchased by state banks.

April Turbulence

A chorus of market watchers speculated that the Chinese regime was fiercely dumping its portfolio of Treasury securities during the April turbulence. This concern has been prevalent for the past decade, with economic observers warning that Beijing could weaponize its U.S. assets by rapidly selling bonds, potentially triggering instability in global financial markets and causing interest rates to soar.

The worst-case scenario appeared to emerge in April. Volatility was pervasive across the U.S. bond market, with the benchmark 10-year yield experiencing significant fluctuations following President Donald Trump’s announcement of sweeping global tariffs.

While foreign investors reduced their investments by a small amount, the latest Treasury International Capital (TIC) figures suggest the drop was not substantial enough to trigger the enormous swings observed throughout the market tumult. If China and other large foreign holders were offloading their holdings, the turbulence would have been more severe than it was.

“Our view is that there are a number of reasons why U.S. Treasury bonds are selling off, but forced deleveraging is likely the primary culprit,” Lawrence Gillum, the chief fixed-income strategist for LPL Financial, wrote in a recent note emailed to The Epoch Times.

“That is not to say there hasn’t been foreign officials selling—it just isn’t the primary reason for the bond selloff, in our view.”

Matthias Dettwiler, the head of fixed income at UBS, says the world is likely rethinking U.S. debt.

“For a long time, the U.S. has managed to keep Treasury yields relatively low due to their special status as reserve assets and the U.S. dollar’s role as a reserve currency,” Dettwiler said in a June 16 research note. “This perception of safety and implicit guarantee is now being questioned, regardless of where we land on tariffs.”
As for China, the regime’s pursuit of lowering its exposure to American debt has been a multi-faceted approach.

The Long Goodbye

Since reaching a peak of $1.317 trillion in November 2013, China’s total holdings of U.S. Treasury bonds have declined gradually by about 42 percent.
To diminish its reliance on the United States and mitigate economic or geopolitical risks, China has diversified its foreign exchange reserves. In addition to U.S. assets, the $3.6 trillion stockpile contains other major currencies and gold.

But the reallocation of resources, mainly conducted by the People’s Bank of China, could also be a form of currency management to stabilize the Chinese yuan—and the strategy appears to be succeeding.

Year to date, the offshore yuan has strengthened by approximately 2 percent against the greenback, and the onshore yuan has risen by 1.7 percent. (The difference is that onshore yuan is traded on the mainland, while the offshore yuan is traded in the free market.)

In recent years, the divergence between government bond yields in the United States and China has widened, applying pressure on the yuan exchange rate.

For example, the benchmark 10-year Treasury yield is above 4.4 percent. By comparison, the Chinese 10-year bond yield is below 1.7 percent.

Higher Treasury yields would, theoretically, make dollar-denominated assets more attractive to global investors, facilitating various trends, such as greater capital outflows. This would put downward pressure on the yuan, particularly in offshore markets where the currency is traded more freely.

The yield gap also presents different outlooks for the world’s two largest economies. Rising yields could signal a robust economic landscape, while falling yields could suggest deteriorating expectations.

In the United States, the widely monitored Federal Reserve Bank of Atlanta’s GDPNow Model estimate projects the economy will expand by 3.4 percent in the second quarter.

Trade-related uncertainty has sent mixed signals about the broader Chinese economy, although economists expect growth prospects to remain intact.

“So far, 2025 has been an event-rich year, with different catalysts seemingly emerging every few weeks. However, with five months of data now available, the data suggest that the economy has actually held up relatively well year to date,” Lynn Song, a chief economist at ING, said in a June 16 note.

De-Dollarization

For the past decade, China has spearheaded a global campaign to de-dollarize the world economy.

De-dollarization refers to the international trend of reducing reliance on the U.S. dollar in global commerce and government reserves. The initiative gained momentum in recent years, but its impetus ostensibly faded when Trump announced that countries engaged in anti-dollar efforts would face steep tariffs.

Shortly after his 2024 election victory, the president threatened to impose 100 percent tariffs on member countries of BRICS—a multilateral institution involving the initial members of Brazil, Russia, India, China, and South Africa, and the later members of Egypt, Ethiopia, Indonesia, Iran, and the United Arab Emirates—if they attempted to dethrone the dollar.

“We are going to require a commitment from these seemingly hostile Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they will face 100% Tariffs,” Trump said in a Nov. 30 Truth Social post.

“There is no chance that BRICS will replace the U.S. Dollar in International Trade, or anywhere else, and any Country that tries should say hello to Tariffs, and goodbye to America!”

The subject has taken a backseat to the more pressing trade and tariff issues. However, if the Chinese regime is still forging ahead to threaten the dollar hegemony, its actions might be minimal enough not to disrupt global financial markets.

According to April data from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the U.S. dollar remains the dominant currency in global payments, accounting for approximately half of all transactions.
.

Read More