China's US Treasury Holdings Drop to 14-Year Low Amid Geopolitical Tensions

Geopolitical Tensions Fuel China’s Treasury Shift

The amount of U.S. Treasuries held by China has dropped to its lowest level since 2009. The decline is attributed to China’s preference for holding U.S. bonds through less visible accounts and its ongoing campaign to diversify and limit exposure to the U.S. financial system.

According to a Financial Times report, U.S. sovereign debt held by Chinese entities fell by $57 billion to $759 billion. While Chinese investors also hold sovereign debt from other countries, the Financial Times report did not provide specific figures. Some analysts quoted in the report suggested that China is deliberately withholding detailed information about its Treasury holdings.

Brad Setser, a senior fellow at the Council on Foreign Relations and former U.S. Treasury official, said the Chinese are no longer comfortable holding a large debt of a rival power.

“China made a decision around 2010 that holding Treasuries was a risk. It looked bad optically that so much of China’s wealth was in the hands of a geopolitical rival,” Setser is quoted as saying.

However, the report also notes that the decline may be due to Chinese investors shifting to securities depositories such as Belgium-based Euroclear and Luxembourg-based Clearstream.

The decline in China’s Treasury holdings comes amid growing calls for countries in the Global South to de-dollarize. Other factors contributing to China’s reduction include diversifying its foreign exchange reserves, reducing its reliance on the U.S. dollar, and mitigating geopolitical tensions.

Meanwhile, Mark Sobel, U.S. chair of the Official Monetary and Financial Institutions Forum, suggested that the drop in China’s holdings could be due to other reasons, including fluctuations in bonds’ market value.

“Whether they have reduced overall dollar holdings I don’t know, but they are definitely investing in a broader array of instruments through different vehicles,” Sobel said.