[Salon] China’s sovereign debt is becoming a strategic alternative to US Treasuries

[Chas Freeman <cwfresidence@gmail.com>]

China’s sovereign debt is becoming a strategic alternative to US Treasuries: economist

Beijing is now offering dollar-denominated sovereign bonds at rates matching equivalent US Treasuries – and investors are snapping them up

SCMP

Xinyi Wuin Beijing

4 Mar 2026

China’s sovereign debt is emerging as a strategic alternative to US Treasuries as global investors look for geopolitical hedges, though greater market liquidity and deeper yuan internationalisation are still needed to cement its status as a global safe haven, an economist at a Chinese government think tank has said.

“[These bonds] circumvent the restrictions of the non-convertibility of the renminbi,” said Xu Qiyuan, deputy director of the American Studies Institute at the Chinese Academy of Social Sciences, in a February report.

“At the same time, they possess high-grade sovereign credit backing and liquidity and minimise the risk of sanctions or asset freezes due to holding assets within the major US financial system, such as US Treasury bonds.”

Xu’s comments came at a time of swirling debate in Chinese policy circles about how Beijing can capitalise on wavering investor confidence in the United States and the US dollar. The issue is expected to be a hot topic at the “two sessions” – the annual meetings of China’s top legislature and advisory body – beginning on Wednesday.

Xu said geopolitical hedges aligned with a strategic push by sovereign institutions to diversify their asset allocations. This demand was being further fuelled by a shortage of high-quality liquid assets, despite relatively abundant global liquidity, he added.

He cited the robust demand for Beijing’s US$4 billion dollar-denominated sovereign bonds issued in Hong Kong last November – which matched the US’ borrowing costs for the first time – as an example.

The three-year bonds had a coupon rate of 3.625 per cent – in line with US Treasury bonds – while the five-year tranche had a rate just 0.02 percentage points above equivalent Treasuries.

The bonds were oversubscribed nearly 30 times, with sovereign institutions, banks and insurance companies making up two-thirds of its investors, according to the Ministry of Finance.

This was a “vote of confidence in China’s long-term political stability and high-quality economic development”, Xu said, particularly as the safe-haven status of US Treasuries faces headwinds amid America’s swelling US$38 trillion national debt and growing “weaponisation” of the US dollar.

He noted, however, that China’s path to providing a true global alternative remained constrained.

To bridge this gap, Beijing should establish a regular and predictable issuance calendar for both onshore and offshore bonds to deepen market liquidity, Xu suggested.

China’s central bank should also play a more active role by gradually increasing its buying and selling of bonds in the secondary market, he added.

Furthermore, authorities need to accelerate the internationalisation of the yuan and optimise the financial infrastructure system to ensure it is fully compatible with international clearing and settlement standards, according to Xu.

Xinyi Wu

Xinyi joined the Post in 2024, starting out in Hong Kong. She previously reported on business news in Singapore and taught writing at a university in Shanghai. She graduated with a degree in anthropology from Yale-NUS College.