China advises banks to limit U.S. Treasury holdings amid volatility concerns – NaturalNews.com

• China directs its major banks to reduce holdings of U.S. Treasury bonds.
• This formalizes a long-term strategy of diversification away from U.S. debt.
• China’s Treasury holdings have been nearly halved over the past decade.
• The move reflects global concerns about U.S. fiscal policy and dollar dominance.
• A sustained shift could gradually raise U.S. borrowing costs and weaken the dollar.

In a move that underscores the deepening financial divide between the world’s two largest economies, Chinese regulators have advised the nation’s major banks to limit their exposure to U.S. Treasury bonds. This guidance, reported by Bloomberg and confirmed by other financial news outlets, instructs banks to curb new purchases and reduce existing high holdings, citing concerns about market volatility and concentration risks. The directive, delivered verbally in recent weeks, highlights Beijing’s strategic effort to diversify away from American debt amid ongoing geopolitical tensions and questions about the dollar’s enduring dominance.

This is not a sudden fire sale, but a deliberate and long-term strategy. Over the past decade, China’s holdings of U.S. Treasuries have been nearly halved, dropping from a peak of around $1.3 trillion in 2013 to approximately $683 billion as of last November. This decline has seen China fall behind both Japan and the United Kingdom as the top foreign holder of American government debt. The recent guidance to commercial banks formalizes a retreat that has been underway for years.

A strategy of deliberate diversification

Sources familiar with the matter emphasized to Bloomberg that the move was framed around diversifying market risk. It was not described as a direct geopolitical maneuver or a fundamental loss of confidence in U.S. creditworthiness. The guidance reportedly came before a recent phone call between Chinese President Xi Jinping and U.S. President Donald Trump, and ahead of a planned summit between the two leaders. This timing suggests the policy is rooted in long-term financial risk management rather than a short-term political reaction.

The numbers reveal the scale of the shift. Data from China’s State Administration of Foreign Exchange shows Chinese banks held about $298 billion in dollar-denominated bonds as of September, although the exact portion that are U.S. Treasuries is unclear. Meanwhile, China’s overall state and private sector holdings have consistently dwindled. This trend is part of a broader pattern among major emerging economies, with analysts noting that BRIC nations have been “quietly leaving the Treasury market.”

The context of a shaky dollar

This Chinese caution arrives during a period of intense scrutiny of the U.S. fiscal trajectory. President Trump’s unpredictable trade policies, attacks on Federal Reserve independence, and massive public spending have led global investors to question the safe-haven status of U.S. debt. As ING’s global head of markets, Chris Turner, observed, “Comments like these come at a vulnerable time for the dollar, when the dollar diversification theme is rife.”

The reaction in financial markets was immediate but measured. Upon the news, Treasury prices slipped and yields edged higher, while the dollar weakened slightly. However, there is little evidence of panic. U.S. Treasury Secretary Scott Bessent recently touted record foreign demand at Treasury auctions and the market’s strong performance. A measure of Treasury volatility has even fallen to a five-year low, and foreign holdings overall hit a record $9.4 trillion last November.

Some analysts suggest China’s apparent retreat may be partially optical. Beijing may have shifted some holdings to custodian accounts in Europe, such as in Belgium, whose Treasury holdings have quadrupled since 2017. This could mean the net reduction in Chinese exposure is smaller than the official U.S. data suggests. Nonetheless, the directive to its own banking sector sends a clear signal of Beijing’s preferred direction.

What does this mean for the American economy?

The implications for the American economy are profound, if gradual. For decades, foreign purchases of U.S. debt have allowed the government to finance its spending at lower costs. A sustained pullback by a major buyer like China could pressure yields to rise over time, increasing borrowing costs for the U.S. government, businesses, and homeowners. It also weakens the dollar’s position as the undisputed global reserve currency, a shift already seen in actions like Russia and China increasingly settling bilateral trade in rubles and yuan rather than dollars.

This financial maneuvering is a quiet form of power politics. While experts like Innes McFee of Oxford Economics dismiss the idea of China “weaponizing” its Treasury holdings, the steady diversification is a strategic lever. “It’s a convenient story aligned to political narratives,” McFee told Fortune, “but the reality is there’s no real evidence of capital outflows out of U.S. assets.” He notes that foreign entities may be hedging their massive exposure rather than abandoning it outright.

Ultimately, China’s move is a symptom of a larger transformation. It reflects a global reassessment of risk and a slow but steady move toward a multipolar financial world where the U.S. dollar is no longer the only game in town. For the average American, this technical banking guidance from Beijing is a distant rumble, but it signals the shifting tectonic plates beneath the global economic order, and it’s a shift that promises higher costs and greater uncertainty in the years to come.

Sources for this article include:

RT.com

Bloomberg.com

Fortune.com

Reuters.com