File photo shows a worker counts Chinese currency Renminbi (RMB) at a bank in Linyi, east China's Shandong Province. Photo: Xinhua

China's holdings of US Treasury bonds fell to $775 billion in February, a drop of $22.7 billion from a month earlier, the second decrease this year, according to data released by the US Department of the Treasury on Wednesday.

In February, China remained the second largest holder of US government debt. However, China's holding of US government debt has been below the $1 trillion mark since April 2022. 

In January 2024, China trimmed holdings of US treasuries by $18.6 billion.

The downsizing marks a structural adjustment of China's foreign exchange reserves, impacted by factors including the country's balance of external payments and the profits on US Treasury bonds, Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at Renmin University of China told the Global Times on Thursday.

Dong said that China is unlikely to dump US Treasury debt since the function of US dollar as a global reserve currency remains unchanged.

However, China may continue to trim its holdings of US Treasury debt in an orderly fashion in a bid to optimize the structure of the country's foreign exchange reserves to ensure economic stability, Dong said.

"While the US' nominal GDP growth rate looks good, part of that growth is being pushed up by high inflation there. Risks are accumulating across the US economy," Dong said, adding that it is a general trend for China to diversify its foreign assets.

As the global trend toward de-dollarization has begun, many countries have accelerated diversifying their reserves by increasing holdings of gold and using local currencies for international payment.

China's gold reserves at the end of March reached 72.74 million ounces, a monthly increase of 160,000 ounces, marking the 17th consecutive month for the country to increase holdings of this asset, showed data from the People's Bank of China (PBC), the central bank.

China's foreign exchange reserves totaled $3.25 trillion as of the end of March, increasing by 19.8 billion dollars, or 0.62 percent, from a month earlier, according to data released by the State Administration of Foreign Exchange on April 7.

The Chinese economy will continue to gain growing momentum, conducive to keeping the scale of the country's foreign exchange reserves generally stable, the administration said.

Global Times