China now holds about $683 billion in US Treasuries, which is the lowest level since 2008. This means China has sold about half of the US bonds it bought between 2000 and 2010. At the same time, China has been buying gold regularly instead of bonds. In January alone, China’s central bank bought 1 tonne of gold, marking its 15th straight month of buying gold. China’s total gold reserves have now reached a record 2,308 tonnes. Experts say this clearly shows China is moving away from US Treasuries and shifting toward gold.
Big US debt market
The US Treasury market itself is huge — worth around $30 trillion, making it the biggest debt market in the world. For many years, foreign countries and investors helped build this market by buying US government bonds. China has been reducing its holdings slowly over the past decade but still remains one of the largest foreign holders, as reported by Bloomberg. China’s holdings actually peaked in 2013, and since then they have almost been cut in half. Recently, Beijing also told Chinese banks to reduce their private investments in US Treasuries.
One big reason for this move is to reduce China’s dependence on the United States financially. Officials say it also helps lower risk if markets become unstable. Another reason is political tensions between the US and China over trade, technology, and Taiwan. China is also worried because in 2022, the US and its allies froze about $300 billion of Russia’s reserves after the Ukraine invasion. China fears a similar action could happen to its dollar assets in extreme situations.
Risks for China economy
However, reducing US bonds too fast could hurt China’s own economy. Selling too many Treasuries quickly could push the Chinese yuan higher, which would make Chinese exports more expensive globally. China also has limited options because it has about $3.4 trillion in foreign reserves to invest, as noted by Bloomberg. Other bond markets like Europe or Japan are smaller and less liquid than the US market. Investing in stocks or real estate globally would be riskier and harder to manage.
A large sell-off of Treasuries could also weaken the US dollar. A weaker dollar would actually help US exports and reduce demand for Chinese goods. It would also lower the value of China’s remaining dollar assets. Experts also warn that an aggressive move away from US bonds could trigger retaliation from the US.
Global investors changing
For the US, the immediate market impact of China’s recent actions has been small so far. But if China stopped buying or sold a large amount suddenly, US borrowing costs could rise sharply. This could increase mortgage rates, business loan costs, and government borrowing expenses in the US. It could also weaken the US dollar’s status as a global safe-haven currency, as per Bloomberg. China holds so much US debt mainly because of its export-driven economy. For decades, China has sold far more goods to the US than it bought, creating large dollar inflows. Chinese exporters often keep those dollars overseas and invest them in foreign assets like US bonds. The central bank also uses these reserves to support the yuan during financial crises.
Some other countries and funds are also reducing their US Treasury holdings. Denmark’s AkademikerPension said it would sell about $100 million of Treasuries. A Dutch pension fund reduced holdings by around €10 billion recently, as per the report by Bloomberg. Countries like India and Brazil have also cut their US bond holdings. Meanwhile, Japan, the UK, and Canada have actually increased their holdings.
Overall, foreign holdings of US Treasuries hit a record $9.4 trillion in November. But foreign investors now own a smaller share of the total market because US government borrowing has grown rapidly. Foreign investors currently hold about 31% of US Treasuries, down from around 50% in 2015.
FAQs
Q1. Why is China selling US Treasuries?
China is reducing US bonds to lower risk, depend less on the US, and move more money into gold and other safe assets.
Q2. Will China selling Treasuries affect the US economy?
Yes, if China sells a lot quickly, US borrowing costs could rise and the dollar could become weaker.
