Treasury bonds held by China fell to their lowest level since 2009 as Beijing held US government bonds through lower-profile accounts and turned to alternative assets.
According to data released by the US Treasury on Tuesday, the value of US government debt held by Chinese investors fell by $57 billion to $759 billion in 2024. This data does not include Treasury bonds held by China in accounts in other countries.
Analysts say this change partly reflects China’s desire to diversify its foreign reserves by buying assets such as gold. But they add that Beijing is also trying to conceal the true size of its Treasury holdings by shifting them to custody accounts registered in other countries.
‘China decided around 2010 that holding Treasuries was a risk, it looked optically bad to have such a large chunk of China’s wealth in the hands of a geopolitical rival,’ said Brad Setser, a senior fellow at the Council on Foreign Relations and a former US Treasury official.
Speaking to the Financial Times, Setser added that the decline in China’s assets may have been exaggerated by some assets being moved to securities custodians such as Belgium-based Euroclear and Luxembourg-based Clearstream, which would increase those countries’ holdings in official data.
‘It has become more difficult over time to keep track of what China is doing and how flows from China are affecting global markets,’ Setser said.
Changes in foreign ownership of Treasuries are closely watched, given the US government’s need to finance a large budget deficit at a time when the central bank is reducing its own holdings of government debt.
China’s reported holdings of Treasuries have fallen by about $550 billion since peaking in 2011. The UK’s holdings increased by $34.2 billion in 2024, while Belgium’s holdings increased by $60.2 billion and Luxembourg’s by $84 billion. Japan remains the largest asset holder with over $1 trillion in holdings.
‘Not all the US Treasuries held by China are held directly in US institutions,’ a person familiar with the management of China’s foreign reserves told the Financial Times, adding that Beijing holds some of its reserve assets “for risk diversification purposes”. ‘It holds them through organizations such as Euroclear or Clearstream,’ he added.
‘However, as China continues to diversify its reserve assets, China’s total holdings in US Treasuries will gradually decline, a trend that is clear,’ he added.
Mark Sobel, US president of the Official Forum of Monetary and Financial Institutions, said the People’s Bank of China (PBoC) is increasing its exposure to other assets such as gold, which is often seen as a haven in times of economic and market stress.
The price of gold bullion has risen about 12 percent so far this year, a sign of growing demand among major buyers. Data from the World Gold Council showed that China became the third-largest gold buyer in the last three months of 2024, adding 15.24 tonnes to its reserves.
However, even though the PBoC’s gold holdings have increased by 13 percent over the past two years, bullion still represents a relatively small part of the central bank’s total reserves.
Sobel said the decline in Treasury assets does not mean that China is selling dollar assets in general. Some analysts say China has increased its buying of other safe US debt, such as agency bonds. Changes in the value of Chinese Treasury assets also reflect fluctuations in the market value of bonds.
‘I don’t know if they are reducing their total dollar holdings, but they are certainly investing in a wider range of instruments through different vehicles,’ Sobel said.
Analysts said the increase in Treasury bond holdings in the UK was due to the flow of money from foreign sovereign wealth funds, wealthy families, and hedge funds to London, while a similar dynamic was being experienced in Belgium.
Andy Brenner, NatAlliance’s head of international fixed income, said that given gilts yields are above Treasuries, buyers of Treasuries in the UK are unlikely to be British investors, but instead ‘it’s about foreign money, including Middle Eastern money’.
Setser said hedge funds may be holding US Treasuries in the UK as part of basis trading, a highly leveraged strategy in which funds buy US bonds and sell futures to profit from small price differences.