China keeps slashing US Treasury holdings, but will it reverse course as rate-hike cycle nears end?

World’s second-largest economy offloaded US$13.6 billion worth of US debt in July

But China still remains the second-largest foreign holder of US Treasury bills, having been surpassed by Japan in mid-2019

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China’s overall holding of US debt remains at a 14-year low. Photo: EPA-EFE

Published: 11:00pm, 19 Sep 2023

Amid persistent concerns over the safety of its overseas assets – most of which are US dollar-denominated – China has slashed its holdings of United States Treasury bills for the fourth straight month.

However, as the Federal Reserve and other major central banks approach the end of their rate-hike upcycle that began in March 2022, analysts say Beijing’s policymakers may need to reassess the situation and rethink their decision to dump Treasuries.

The world’s second-largest economy offloaded US$13.6 billion worth of US debt in July, bringing China’s holdings to US$821.8 billion, according to the latest data from the US Department of the Treasury.

China’s overall holding of US debt remains at a 14-year low, after reaching that level in June.

Beijing has been continuously cutting China’s US debt holdings since early 2022, with two exceptions – in March of this year and July 2022, when it increased holdings by US$20.3 billion and US$320 million, respectively.

Beijing remains the second-largest foreign holder of US Treasury bills after being surpassed by Japan in June 2019.

The reduction in US Treasury bills holdings between March 2022 and this past July – China dumped US$191.4 billion, Japan slashed US$116.5 billion, Ireland cut US$44.4 billion, Brazil shed US$8.6 billion and Singapore got rid of US$4.8 billion – was partly because of the slew of aggressive US interest rate hikes that have dampened bond prices.