China’s US Treasury holdings fall to a 12-year low in 2022 as crackdown fuels impetus to diversify away from dollar-backed assets
Published: Feb 16, 2023 03:30 PM
A citizen counts the US dollars in Houma City, north China's Shanxi Province, Oct. 11, 2011. The Chinese currency renminbi, or the yuan, strengthened 103 basis points to a record high of 6.3483 against the US dollar on Tuesday, according to the China Foreign Exchange Trading system.Photo: Xinhua

File photo: Xinhua

China's US Treasury holdings fell to a 12-year low in 2022, latest data showed, with China continuing to slash its holdings in December, marking the fifth straight month of cuts and leaving its holdings below $1 trillion for the eighth straight month since April last year. 

Japan, the US' largest creditor, and China, its second largest, all cut US debt holdings in 2022, according to data from Treasury International Capital (TIC), reporting system of the US, released on Wednesday (US time). Japan slashed its holdings by $224.5 billion and China by $173.2 billion. 

In December, Japan cut its holdings of US Treasury bonds by $6 billion, to $1.08 trillion. For China, holdings decreased by $3.1 billion to $867.1 billion. It is the fifth straight month in which China slashed its holdings of US debt and the holding is at the lowest level since June, 2010, according to Reuters. 

Analysts said that the fire sale by major economies was a sign of their waning confidence in US debt, as the US faces economic woes such as its debt ceiling debacle.

Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times on Thursday that the selling by Japan and China indicated creditors' weakening confidence on strong dollar as well as concerns over the US economy.

It is also a fiscal operation, in which creditors believe offloading US Treasury bonds at the moment could bring more benefits, Zhou said.

"Though different from Japan, China's offloading is also rooted in the concerns that the US has in recent years markedly used the dollar, US financial systems and US-based public goods as weapons," Zhou said, noting that the concerns drive China to shed its US Treasury holdings as part of a diversification effort.

The US has used its financial services as a weapon against Russia following the Russia-Ukraine conflict to a scale and depth unseen before. Taking a lesson, countries around the world have recognized the importance of diversifying their dollar-denominated assets.

Being seen as the biggest competitor to the US and already facing a technology crackdown and stranglehold instigated by Washington, China has all the more reason to diversify its dollar assets, of which Treasury bonds is a part, Zhou said.

All US creditors combined offloaded a total of $425.9 billion worth of US Treasury securities in 2022.

The UK, Belgium and Luxembourg, the third, fourth and fifth largest creditors of the US, saw their holdings increase for the whole of 2022. Combined, the three creditors increased their holdings by $89.5 billion.