China’s holdings of U.S. Treasury securities dropped to $757.2 billion in April 2025, the lowest since March 2009, down $8.2 billion from March and $13 billion year-over-year, according to U.S. Treasury data. This continues a decade-long decline from a peak of over $1.3 trillion in 2013, with a 44% reduction since then. Beijing, now the third-largest foreign holder behind Japan and the UK, is diversifying its portfolio to reduce reliance on U.S. assets amid trade tensions and fears of potential sanctions.
Some holdings are channeled through intermediaries in Belgium and Luxembourg, masking their full extent. Selling Treasuries also supports the yuan’s exchange rate, but a large-scale dump is unlikely due to economic risks to China, such as a stronger yuan hurting exports. China’s reduction in U.S. Treasury holdings reflects efforts to diversify its foreign exchange reserves, reducing reliance on U.S. assets amid ongoing trade disputes, technological rivalry, and fears of potential sanctions, similar to those imposed on Russia. This shift signals a broader strategic move to insulate its economy from U.S. financial leverage.
By holding fewer Treasuries, China may be increasing investments in other assets like gold, European bonds, or emerging market securities, though data on these shifts is less transparent. China’s $757.2 billion in Treasuries (as of April 2025) represents about 2.8% of the $27 trillion in outstanding U.S. Treasury debt. While a significant holder, its reduced purchases have not yet disrupted U.S. borrowing costs significantly, as demand from Japan, the UK, and domestic investors remains strong.
However, a coordinated or rapid sell-off (unlikely but possible) could pressure Treasury yields upward, increasing U.S. borrowing costs and impacting federal budget deficits, projected to hit $1.9 trillion in 2025. Selling Treasuries provides China with dollars to support the yuan, which has faced depreciation pressure from capital outflows and economic slowdown. A stronger yuan helps stabilize China’s economy but risks hurting export competitiveness, a key growth driver.
Maintaining large-scale sales is challenging, as it could depress Treasury prices, reducing the value of China’s remaining holdings and triggering global market volatility. China’s actions contribute to a gradual de-dollarization trend, as it promotes yuan-based trade and alternative reserve assets. However, the dollar’s dominance (58% of global foreign exchange reserves) remains intact, limiting immediate systemic shifts. Reduced Chinese demand for Treasuries may push other central banks (e.g., Japan, with $1.15 trillion in holdings) to reassess their portfolios, potentially increasing global yield volatility.
Despite reduced Treasury holdings, the U.S. and China remain deeply intertwined. The U.S. relies on Chinese manufacturing, while China depends on U.S. consumer markets and dollar-based trade. This interdependence tempers aggressive moves like a Treasury dump, which would harm both economies. However, the divide is widening as both pursue decoupling strategies. The U.S. pushes for supply chain diversification and export controls on technology, while China seeks self-sufficiency in semiconductors and strengthens ties with non-Western blocs like BRICS.
China’s sell-off is partly driven by fears that the U.S. could weaponize its financial system, as seen with Russia’s frozen reserves post-2022 Ukraine invasion. This fuels China’s push for a multipolar financial order, including yuan internationalization and alternative payment systems like CIPS. Conversely, the U.S. views China’s actions as a challenge to its economic hegemony, prompting policies to maintain dollar dominance and restrict China’s access to advanced technologies.
The divide extends beyond economics, shaping global alliances. China’s reduced Treasury holdings align with its closer ties to Russia, Iran, and Global South nations, while the U.S. strengthens partnerships with allies like Japan, South Korea, and the EU to counter China’s influence. Neutral or non-aligned countries (e.g., India, Gulf states) face increasing pressure to choose sides, complicating global trade and investment flows.
For China, diversifying away from Treasuries risks lower returns and liquidity, as few assets match the depth of U.S. debt markets. A misstep could strain its $3 trillion in foreign reserves, critical for economic stability. For the U.S., sustained foreign sell-offs (if joined by others) could exacerbate fiscal challenges, especially with rising debt-to-GDP ratios (projected at 122% by 2030). Higher yields might force spending cuts or tax hikes, polarizing domestic politics further.
China’s 16-year low in U.S. Treasury holdings underscores a growing economic and strategic divide, driven by mutual distrust and competing visions for global influence. While immediate market disruptions are limited, the trend signals long-term risks: higher U.S. borrowing costs, yuan volatility for China, and a fragmented global financial system. Both nations face a delicate balancing act—preserving economic stability while advancing their geopolitical agendas—ensuring this divide will shape global dynamics for years to come.
