China's US Treasury holdings hit lowest since 2008, half of 2013 peak

China's holdings of US government bonds have fallen to their lowest level since August 2008.

According to US Treasury data released Thursday (local time), Chinese investors held $618 billion in US Treasuries recorded at American banks and custodians as of July — less than half the record high of $1.3 trillion reached in November 2013.

The Financial Times said the trend reflects both a shift in how Chinese authorities manage their foreign exchange reserves and deepening tensions between the world's two largest economies. The paper also noted that it signals an intensifying economic and geopolitical decoupling between the United States and China.

The United States is grappling with a large fiscal deficit and inflation, while China is posting record trade surpluses even as it faces slowing economic growth and deflationary pressure.

Wei Li, head of multi-asset investment at BNP Paribas Securities' China unit, said the decline in China's Treasury holdings is "part of a global trend toward diversifying into other assets — gold, agency bonds, and particularly shares linked to the AI boom."

Experts note that China also holds significant amounts of US Treasuries through third-party custodians such as Euroclear in Belgium and Clearstream in Luxembourg, meaning its actual holdings are likely larger than official figures suggest.

The selloff accelerated after the United States froze Russia's overseas assets following Russia's full-scale invasion of Ukraine in 2022, driven by concerns that China could face a similar situation in the future.

A broader shift among foreign investors toward US shares over US government bonds also appears to be a factor. According to Deutsche Bank, overseas capital flowing into US shares in the year through June equaled 2.8 percent of GDP — surpassing the 2 percent inflow into US Treasuries for the first time this century, outside the periods immediately following the COVID-19 pandemic and the global financial crisis.

Alicia Garcia Herrero, chief economist for Asia-Pacific at investment bank Natixis, said China's intent is "mainly to show the US that it can sell large amounts of Treasuries."