In a significant development signaling Beijing’s ongoing recalibration of its foreign reserves strategy, China’s recorded holdings of US Treasuries have dipped below those of the United Kingdom for the first time since October 2000. The data, first reported by the Financial Times, underscores a long-term trend of China steadily moving away from US government debt.
According to figures released late Friday by the US Department of the Treasury, China’s holdings dropped to $765 billion at the end of March, down from $784 billion in February. Meanwhile, the UK’s holdings surged by nearly $30 billion to reach $779 billion, making it the second-largest foreign holder of US Treasuries after Japan.
The Financial Times noted that the UK’s elevated position is largely attributable to London’s role as a global financial hub, serving as a domicile for international capital managed by banks, insurers, custodians, and hedge funds, rather than an expansion in official UK reserves.
“This is a warning to the US,” said Alicia García-Herrero, chief economist for Asia-Pacific at Natixis. “China has been selling slowly but steadily. The warning has been there for years — it’s not sudden — the US should have acted on this well before.”
The data comes at a time of increasing concern over the US’s fiscal stability. Ratings agency Moody’s recently joined Fitch and S&P in removing the United States’ triple-A credit rating, citing ballooning federal debt and widening deficits — a development that could make borrowing more expensive for Washington.
China’s retreat from Treasuries is not new. Its holdings peaked at over $1.3 trillion in 2011, and since then, it has been diversifying into other assets including US agency bonds and gold. The decline in Treasury holdings may also reflect market fluctuations as well as Beijing’s use of third-party custodians such as Euroclear (Belgium) and Clearstream (Luxembourg), which could obscure the true scale of Chinese investments.
While Luxembourg’s Treasury holdings remained flat in March, Belgium’s rose by $7.4 billion, adding to speculation that China may be shifting portions of its portfolio through indirect channels.
Brad Setser, senior fellow at the Council on Foreign Relations and a former US Treasury official, emphasized another trend: “Based on the visible data, there is no doubt that China has shortened the maturity of its US portfolio.” The share of Chinese-held short-term Treasury bills — the most liquid and easily sold instruments — reached its highest level since 2009 in March.
Analysts also pointed out that hedge funds may be contributing to the UK’s elevated Treasury holdings through “basis trades,” where securities are arbitraged against futures or swaps. Setser added that the uptick in UK holdings likely reflects “an increase in Treasuries held by global banks, the availability of custodial services in London and potentially some of the activity of hedge funds.”
The data only reflects activity through the end of March, and experts caution that more recent geopolitical developments — including former President Donald Trump’s renewed hardline rhetoric against China — may yet further influence Beijing’s reserve strategies.
