China’s Treasury Sell-Off Does Not Mean It Is Leaving the Dollar

Commentary

Pro-China propaganda touts Beijing’s reduction in U.S. Treasury holdings as evidence that the U.S. dollar is weakening and, by extrapolation, that the Chinese yuan is overtaking it. The reality couldn’t be further from the truth.

The Chinese yuan accounts for only 2.11 percent of global currency reserves and less than 2 percent of global trade invoicing, while the U.S. dollar accounts for 56.70 percent of reserves and about 50.10 percent of global payments.

China’s holdings of U.S. Treasurys peaked at $1.32 trillion in November 2013 and have steadily decreased since then. They fell to $618 billion in July, the lowest level since August 2008, according to Treasury International Capital data. Media coverage and some analysts presented the decline as evidence that Beijing is losing faith in the U.S. economy.

However, Treasurys are only one part of China’s exposure to the United States. Chinese holdings of all U.S. long-term securities, including Treasurys, agency bonds, corporate bonds, and equities, totaled $1.14 trillion in July, nearly double the Treasury holdings that drew the headlines.

The most recent detailed Treasury survey, from June 2025, recorded $1.28 trillion in total U.S. securities, including $344 billion in equities, $186 billion in agency bonds, $17 billion in corporate bonds, and $657 billion in long-term Treasurys.

Beijing describes the decrease in Treasury holdings as a form of diversification. In April 2025, Zou Lan, People’s Bank of China deputy governor, said China’s foreign exchange reserve investments had been “effectively diversified.” In January 2026, a Shanghai University of Finance and Economics professor told the state-run Global Times that the reduction reflected “optimization and diversification” of foreign assets.

Despite Beijing’s claims, there has been no diversification in the truest sense: China has moved from one U.S. dollar-denominated security to other U.S. dollar-denominated securities and investments. Between November 2013 and late 2023, China sold $183.1 billion in Treasurys while buying $543.5 billion in U.S. agency bonds, including debt backed by Fannie Mae and Freddie Mac.

The Treasury’s reported figures cover holdings recorded at U.S.-based custodians, while securities held in overseas custody accounts may not be attributed to their actual owners. Analysts say China also holds Treasurys through third-party custodians such as Euroclear in Belgium and Clearstream in Luxembourg, which U.S. data record under those countries rather than China.

Belgium’s reported holdings stood at $470.7 billion in July, compared with $618 billion for China. Market analysts say part of Belgium’s total is held in custody for China. Brad Setser of the Council on Foreign Relations wrote in April that U.S. data are consistent with China’s very aggressive use of non-U.S. custodians over the past five years.

Setser estimated that about $1.8 trillion of China’s $3.3 trillion in official reserves is held in dollars. He also estimated that its state commercial banks hold about $1.1 trillion in dollar assets, its policy banks could hold close to $1 trillion in mostly dollar-denominated claims abroad, and most of the China Investment Corp.’s $450 billion in foreign assets are in dollars.

Setser concluded that China stopped adding to its official reserves while its state banks and funds continued accumulating dollars, and that it could hold more dollars outside its official reserves than inside them.

While China remains dependent on dollar assets, foreign investment in China is declining. U.S. direct investment has declined since 2020 in inflation-adjusted terms as American companies cut new projects, acquisitions, and capital spending there.

Foreign investors reduced their holdings of Chinese government bonds from a record 2.45 trillion yuan at the end of 2021 to 2.01 trillion yuan (about $282 billion) in August 2025, the lowest level since January 2021. By comparison, foreign ownership of U.S. Treasurys reached $9.1 trillion in 2025, more than 30 times foreign holdings of Chinese government debt.

Foreign investment in U.S. stocks and bonds also exceeds investment in China’s markets. Foreign holdings of U.S. securities totaled $35.35 trillion as of June 30, 2025, including $19.86 trillion in equities. Foreign holdings of China’s onshore stocks and bonds exceeded $1 trillion at the end of 2025, according to China’s State Administration of Foreign Exchange.

Beyond stocks and bonds, the United States remained the world’s largest recipient of foreign direct investment in 2025, with inflows of $277 billion. Inflows to China fell to about $116 billion in 2024 and $105 billion in 2025 from more than $160 billion in 2023.

The perception that China is dumping Treasurys serves Beijing’s interests by portraying the dollar and the U.S. economy as weak, helping China promote the yuan as an alternative and strengthening its negotiating position.

During the 2018–2019 trade war, Reuters described a Chinese Treasury sell-off as the “nuclear option” that would likely destabilize world financial markets and drive interest rates higher. Analysts at Trivium China countered that such a move would be ineffective because the Federal Reserve could buy the Treasurys China sold.

Alicia García-Herrero, chief Asia-Pacific economist at Natixis, said China’s intent is “mainly to show” the United States that it can sell large amounts of Treasurys. During an earlier period of bond market volatility, SMBC Nikko strategist Ataru Okumura wrote that if China were selling Treasurys in retaliation, it would have an incentive to show that it would cause financial turmoil to improve its negotiating power against the United States.

Chinese state media outlets have used this lever before. In 2020, as the Trump administration pressured Beijing, the state-run Global Times cited experts who said China may gradually reduce its holdings to about $800 billion because the growing U.S. federal deficit increased the risk of default.

U.S. Treasury Secretary Scott Bessent has dismissed concerns that China could weaponize its holdings. The dollar’s global dominance, the yuan’s limited acceptance, and China’s continued dependence on dollar assets expose the regime’s threats as hollow and contradict claims by critics and pro-Beijing commentators that the yuan is overtaking the dollar.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.