China cuts US Treasury stockpile, dropping to No 3 spot among foreign holders
Britain takes China’s place as America’s second-biggest overseas creditor as Beijing pushes to diversify foreign exchange reserves
As foreign holdings rose for a third straight month to an all-time peak of US$9.05 trillion in March, China’s stockpile slid to US$765.4 billion, down US$18.9 billion from the previous month and ending an upswing in holdings in the January-February period, according to data released by the US Department of the Treasury on Friday.
The data also showed that China dropped to third place among foreign holders of US Treasuries. Britain took its spot as America’s second-biggest foreign creditor, with holdings surging by US$29 billion to US$779.3 billion in March.
Abrupt policy reversals last month, especially the 90-day pause on tariffs for most of Washington’s trading partners, helped calm investor nerves but yields remained elevated.
Moody’s Ratings stripped the US government of its top credit rating on Friday, sending yields on Treasury bonds higher.
Yu Yongding, a former adviser to China’s central bank, said in a commentary in China Newsweek magazine that, given the heightened risks under Trump’s tariff policies, foreign holders of US dollar assets, particularly Treasuries, might have to reckon with the possibility of a de facto default on America’s debt.
“China must have a set of countermeasures through repeated scenario planning to safeguard the security of its overseas assets,” stated the article, which circulated on Thursday.
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Japanese Finance Minister Katsunobu Kato said earlier this month that Tokyo could use its US$1 trillion-plus holdings of Treasuries as a card in trade talks with Washington.
But he later clarified that Japan had no plans to threaten to sell its holdings in the negotiations.
Japan was still the largest foreign holder of US Treasuries in March, with its holdings growing to US$1.13 trillion.
China was the top overseas holder of Treasuries for over a decade, but it ceded the throne to Japan in 2019 as Beijing decreased its holdings amid escalating tensions with Washington caused by the trade war during Trump’s first presidential term.
Since then, Beijing has grown increasingly wary of the US dollar’s dominance in global transactions and has sought to diversify its portfolio, though US Treasuries remain a key component of China’s foreign exchange reserves.
When asked about the turmoil in the US Treasuries market, Zou Lan, a deputy governor of China’s central bank, said late last month that the country’s foreign exchange reserves had been “effectively diversified”.
“The impact of changes in a single market and a single asset on China’s foreign exchange reserves is generally limited,” Zou said.
The March data on Chinese holdings showed net sales of US$27.6 billion of long-term Treasuries, marking the fifth consecutive month of net offloading.
In December, China’s holdings of Treasuries fell to their lowest level since 2009.
The rapid liquidation of China’s Treasury bond stockpile has long been floated as a potential “nuclear” option for Beijing as it faced a strategic rivalry and potential financial war with Washington.
However, Beijing has shown reluctance to make such a drastic move, particularly given the risk it could worsen China’s domestic economy.
Their agreement on Monday lowered Washington’s additional tariff rates on Chinese goods to 30 per cent from 145 per cent for 90 days, while Beijing’s duties on US imports dropped to 10 per cent from 125 per cent for the same period.
US Treasury Secretary Scott Bessent said last month that “weaponising” Treasury holdings would serve no purpose for China.