Beijing has advised Chinese banks to limit new purchases of US Treasury bonds and reduce existing high-risk exposure, citing heightened market volatility and growing financial and geopolitical tensions. The guidance, reported by Bloomberg, reflects a broader strategy to diversify away from dollar-denominated assets but does not apply to China’s official sovereign holdings.
China’s shift away from US government debt has been gradual over the past decade. Holdings have fallen from a peak of approximately $1.3 trillion in 2013 to around $650–700 billion, levels last seen in 2008. This reduction has seen Japan and the UK overtake China as the largest foreign holders of American debt. As of September, Chinese banks held about $298 billion in dollar-denominated bonds, though the exact portion in Treasuries is unclear.
The internal banking guidance was issued ahead of a phone call between Presidents Xi Jinping and Donald Trump, following a one-year trade truce agreed in October. It aligns with public concerns about swings in US bond yields and the long-term reliability of the US dollar as the world’s reserve currency. Germany’s financial regulator, BaFin, recently warned that the dollar’s dominance could face challenges by 2026 due to geopolitical shocks and funding pressures.
The timing coincides with sharp movements in currency and bond markets. The Bloomberg Dollar Spot Index recorded its steepest drop since April after Trump announced sweeping global tariffs. While Trump dismissed concerns about dollar weakness, US Treasury prices extended losses and yields rose modestly in recent sessions. US Treasury Secretary Scott Bessent countered that the Treasuries market saw record foreign demand at recent auctions and delivered its best performance since 2020.
Analysts note that China’s move is part of a longer-term effort to reduce reliance on US financial instruments, though the immediate impact on the vast Treasuries market may be limited given the guidance targets commercial banks rather than state reserves. The development underscores ongoing financial de-risking between the world’s two largest economies amid persistent trade and strategic friction.
The trend toward diversification is being closely watched by global markets. If other holders follow similar strategies, it could pressure US borrowing costs over time and accelerate discussions about alternative reserve assets. For now, the US Treasury market remains deeply liquid, attracting steady demand, but Beijing’s step signals a continued, cautious recalibration of its foreign asset portfolio amid uncertain US policy direction.
