Why is China Continuing to Reduce Its Holdings of U.S. Treasury Bonds?

China continues to reduce its holdings of U.S. Treasury bonds in a trajectory that goes beyond mere reserve rebalancing, reflecting a broader shift in the financial relationship between Beijing and Washington amid rising trade rivalry, sanctions risks, U.S. debt inflation, and China's effort to lessen its exposure to the dollar‑dominated financial system.

This shift gains additional significance as Washington prepares to host Chinese President Xi Jinping for a high‑profile visit at the end of September/early October, coinciding with the intensification of U.S. commercial pressure on Beijing. Treasury Secretary Scott Pippen said the world "cannot coexist" with a Chinese trade surplus of $1.2 trillion per year, urging other countries to pressure China to boost domestic demand rather than rely on exports.

At the same time, China's holdings of U.S. Treasury bonds fell to $633.4 billion in June from $659.3 billion in May, marking the lowest level since September 2008, after reaching a historical peak of $1.3167 trillion in November 2013. This means Beijing cut its direct holdings by about $683 billion, roughly 52%, in less than 13 years.

Using U.S. Treasury bonds as a pressure tool remains costly for Beijing, as selling large amounts would push bond prices down and yields up, while reducing the market value of the remaining holdings. The repercussions could extend to its reserves, the yuan exchange rate, and trade‑linked markets.

Chao argues that China can use the reduction in Treasury holdings as a signal to Washington and a limited pressure lever, but it is difficult to force Washington to back off sanctions with this tool alone, especially since secondary sanctions target dollar‑clearing channels, insurance, shipping, and financial settlements—channels that selling bonds does not reopen.

Federal Reserve data show that foreign holders accounted for about 32% of the total U.S. Treasury marketable debt at the end of 2025, compared with a peak of 55% in 2008, revealing a fundamental paradox: the absolute value of foreign holdings has risen over the long term, while their share of the market has declined as U.S. debt expands at a faster pace.