The headlines don’t match reality when it comes to China’s relationship with America’s debt.
Contrary to suggestions that China is “doubling down” on US Treasury holdings, the data tells a different story—one of steady, intentional reduction.
As of early 2024, China holds approximately $775 billion in US Treasury securities, making it the second-largest foreign holder behind Japan, but this represents a significant decline from historical peaks.
The numbers paint a clear picture of China’s shifting strategy.
Look beyond the noise to the data—China’s systematic reduction of US Treasury holdings reveals a deliberate strategic pivot.
In February 2024 alone, China decreased its holdings by $22.7 billion, part of a broader pattern where holdings fell in nine out of twelve months that year.
This continuing downward trajectory has brought China’s US debt holdings to their lowest levels since 2009, a far cry from their peak of over $1.3 trillion in November 2013.
Remember when China held nearly half of all foreign-owned US debt?
Those days have vanished like morning mist.
Today, China’s portion sits at roughly 7% of total US debt, while its share of foreign-held debt has dramatically shrunk.
Japan now comfortably outpaces China with holdings exceeding $1 trillion, creating a noticeable gap between the top two foreign creditors.
Behind these dry statistics lies a complex dance of economic strategy.
China originally accumulated US Treasuries as safe repositories for its massive trade surpluses, simultaneously keeping the yuan competitive against the dollar—a financial win-win that helped fuel its manufacturing boom.
But the music has changed tempo.
China now balances multiple concerns: diversifying away from dollar assets, increasing gold reserves, and reducing vulnerability to potential US financial sanctions.
The dramatic spike in the 10-year Treasury yield by 50 basis points to a debt-to-GDP ratio of approximately 98% at the end of FY 2024 represents the largest weekly jump since 2001, coinciding with increased trade tensions and suggesting possible Chinese market intervention.
Like a chess player rethinking their position, Beijing is recalibrating its economic sovereignty stance amid growing geopolitical tensions.
The implications ripple outward.
A rapid sell-off could theoretically drive up US borrowing costs, yet such moves would equally harm China’s remaining holdings—a financial version of mutually assured destruction that keeps radical changes in check.
The relationship between these economic giants remains delicately balanced, even as their holdings do not.
