Why China has ordered banks to dump US Treasuries
What's the story
Chinese regulators have asked banks to offload their holdings of US debt and treasury bonds. The move comes amid fears of concentration risks and market volatility, Bloomberg reported. The directive was issued weeks before a meeting between US President Donald Trump and Chinese President Xi Jinping. Notably, state-owned holdings in China were not included in this directive.
Strategy
Advice framed as 'diversification' strategy
The advice to reduce exposure to US government debt was given verbally by some of China's largest lenders. However, it was framed as a strategy for "diversification," not due to geopolitical concerns or loss of confidence in the US economy. The recommendation came without any specific details or deadlines, sources told Bloomberg.
Market response
Chinese banks held $298B in dollar-denominated bonds
As of September 2025, Chinese banks held dollar-denominated bonds worth $298 billion, according to data from the State Administration of Foreign Exchange. However, it is unclear how many of these were treasuries. The news of this directive led to a decline in treasuries with yields rising across maturities during Asian afternoon trading. Meanwhile, the dollar weakened slightly against major currencies.
Investment concerns
Concerns over US debt's safe-haven status
The move has raised concerns that US debt may no longer be a reliable safe-haven investment. A Deutsche Bank AG analyst had warned in January that European banks could lower their holdings in US bonds amid Trump's Greenland ambitions and rising tariffs. Over the last decade, China's state- and private-sector holdings of US Treasuries have steadily fallen, halving since 2013 to $683 billion in November, the lowest level since 2008.
Custodian accounts
Analysts speculate on potential asset shifts
Some analysts speculate that the actual decline in US Treasury holdings may be smaller than reported, as Beijing may have moved some of its assets to custodian accounts in Europe. For instance, Belgium, home to Chinese custodial accounts, according to market analysts has seen its treasury holdings quadruple since late 2017 to $481 billion.