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China pares down US Treasury holdings

By ZHOU LANXU | China Daily | Updated: 2025-09-20 08:58
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China cut its US Treasury holdings by $25.7 billion in July to $730.7 billion, marking the steepest reduction in nearly two years and pushing its holdings to the lowest since 2009, as the country's foreign exchange reserve diversification continued, official data showed.

Analysts said the reduction was influenced by expectations of US interest rate cuts, as investors sought to shield themselves from exchange rate risks. But experts also noted that a stable US debt market benefits China, and that compared with other assets, US Treasuries still offer advantages in liquidity and safety.

After stepping back from being the second-largest holder of US debt to third place in March, China reduced its holdings of US Treasury securities in July, the lowest since February 2009, when the reading was $744.2 billion, according to the US Department of the Treasury.

The cut was the fourth this year and marked the biggest holding decrease since September 2023, data from the US Treasury Department showed.

The reduction bucked the increase of overall foreign holdings in US debt. Foreign holdings of US Treasury securities edged up from June's $9.1268 trillion to $9.1587 trillion in July, with the biggest US debt holder Japan and the second-largest holder the United Kingdom increasing their holdings.

Liu Chunsheng, an associate professor of international economics at the Central University of Finance and Economics, said that China's reduction of US debt in July reflects considerations of foreign exchange reserve diversification, especially as US government debt has exceeded $34 trillion and market concerns over repayment capacity are rising.

Moderately cutting US Treasuries while adding gold and other sovereign bonds helps reduce overreliance on dollar assets and enhances stability, Liu said.

The country's official gold reserves rose for the 10th consecutive month to 74.02 million ounces at the end of August, the State Administration of Foreign Exchange said.

Liu said that the prospect of US rate cut in September and thus a weaker dollar may have also driven US debt sales to avoid loss from currency conversion, adding that, strategically, China needs reduced reliance on the US economy to strengthen its financial autonomy, in line with the pursuit of renminbi internationalization.

Liu said the near-term outlook of China's US debt holdings is less clear-cut.

Falling yields from US rate cuts could push up Treasury prices, increasing the market value of existing holdings and tempering the drive to sell, as investors often "buy on the rise, not on the fall", Liu said.

On Wednesday, the US Federal Reserve cut its federal funds rate by 25 basis points to a range of 4 percent to 4.25 percent. Looking ahead, the Fed's own projections and market indicators suggest two more cuts are likely by the end of 2025.

Yang Weiyong, an associate professor at the University of International Business and Economics, said that decisions on whether to increase or reduce its holdings are primarily driven by market-based considerations — such as US Treasury yields and expectations for future price movements.

"China is a major holder of US debt, so we too want the market to remain stable. That stability benefits the global economy, especially considering that over $9 trillion in US Treasury securities are held by foreign governments and institutions," Yang said, adding that dollar assets still have relatively high liquidity and security among various assets.

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