China cuts US Treasury holdings to 14-year low amid persisting security concerns, geopolitical tensions
- China cut its holdings of US Treasuries for a third month in a row in June, reducing its stake by US$11.3 billion to US$835.4 billion
- Earlier this month, former central bank adviser Yu Yongding called the security of Chinese holdings an increasingly geopolitical issue
China cut its holdings of US Treasuries in June to the lowest since May 2009, as worries over the security of its overseas assets persisted amid Washington’s de-risking endeavours.
The world’s second-largest economy reduced its holdings by US$11.3 billion to US$835.4 billion in June, representing a cut for the third month in a row, according to data released by the US Department of the Treasury on Tuesday.
China has cut its holdings by US$103 billion in the past year to June, or 11 per cent of its total. It has only raised its holdings in two months, including by US$20.3 billion in March and US$320 million in July 2022.
However, the United Kingdom increased its holdings by US$55 billion and Belgium by US$58.9 billion during the same period to June.
China’s reduction of its US Treasuries came as deteriorating relations with Washington have raised domestic concerns over US dollar hegemony, and subsequently security of its overseas assets, a majority of which are US dollar dominated.
Security is one of the three goals highlighted by the State Administration of Foreign Exchange, which oversees China’s US$3.2 trillion foreign exchange reserves. Liquidity and ensuring the value of assets are increased or at least maintained are also included.
The security of Chinese holdings has increasingly become a geopolitical issue
Many Chinese scholars have warned against US dollar weaponisation, after Washington froze US$300 billion worth of Russian central bank assets via sanctions imposed following the invasion of Ukraine in February 2022.
“The security of Chinese holdings has increasingly become a geopolitical issue,” Yu Yongding, a former PBOC policy adviser, wrote in an article earlier this month.
China started to ratchet up its US Treasury bond purchases in 2000, but its buying spree peaked in 2014, dropping below the symbolic US$1 trillion mark in April 2022.
US dollar assets accounted for 58 per cent of China’s foreign exchange reserves in 2017, down from 79 per cent in 2005, government showed.
Gold, seen as a safe-haven asset, shows relatively stable value during periods of global financial turbulence, providing China with a more resilient means to navigate market volatility.
China has increased its gold reserves by 6.05 million ounces in the past year, or 9.7 per cent, to 68.69 million ounces at the end of July.
According to a report released by the World Gold Council in May, central banks are reaching historic high levels of gold purchases following a more pessimistic view of the US dollar.
A total of 24 per cent of central banks were planning to increase their gold holdings in 2023, with central banks in emerging economies particularly eager to augment their gold reserves, the report added.
