China's US Treasury Holdings Drop to Lowest Since 2008, Less Than Half of 2013 Peak

China's holdings of U.S. Treasury securities have fallen to their lowest level since August 2008.

According to data released by the U.S. Department of the Treasury on the 17th (local time), U.S. Treasury holdings by Chinese investors recorded through U.S. banks and custodial institutions stood at $618 billion as of July.

This is less than half of the peak of $1.3 trillion reached in November 2013.

The Financial Times (FT) interpreted this trend as an indicator reflecting changes in how Chinese authorities manage their foreign exchange reserves and the deepening friction between the world's economic superpowers.

It also pointed out that this shows the deepening economic and geopolitical decoupling between the U.S. and China.

While the U.S. is experiencing high fiscal deficits and inflation, China is facing economic slowdown and deflationary pressures despite posting record trade surpluses.

Wei Li, head of multi-asset investment at BNP Paribas Securities China, analyzed that the decline in China's U.S. Treasury holdings is "part of a global trend to diversify investments into other assets, such as gold, government agency bonds, and particularly stocks related to the artificial intelligence (AI) boom."

Experts believe that China also holds significant amounts of U.S. Treasuries through third-party custodial institutions like Belgium's Euroclear or Luxembourg's Clearstream, meaning the actual volume of holdings may be obscured.

China's move to sell off U.S. Treasuries accelerated after Russia's full-scale invasion of Ukraine in 2022, when the U.S. froze Russian overseas assets.

This is driven by concerns that China could face a similar situation in the future.

The recent tendency of foreign investors to invest more heavily in U.S. equities rather than U.S. Treasuries is also believed to have had an impact.

According to Deutsche Bank, overseas capital flowing into U.S. stocks over the one-year period up to June reached 2.8% of U.S. gross domestic product (GDP).

This marks the first time this century—excluding the periods immediately following the COVID-19 pandemic and the global financial crisis—that inflows into U.S. equities have surpassed 2% of inflows compared to U.S. Treasuries.

Alicia Garcia Herrero, chief Asia-Pacific economist at investment bank Natixis, analyzed, "China's intention is primarily to show the U.S. that it is capable of offloading massive amounts of U.S. Treasuries."

(Photo: Getty Images)
※ Please note: This article was translated by AI and may contain errors.