US Treasury Holdings... China Reduces by $18.9 Billion

Falls to 3rd Place in Holding Rank for the First Time in 6 Years

China has fallen to 3rd place in the US Treasury holdings ranking, overtaken by the UK. It has been 6 years since it ceded the top spot to Japan in 2019, and now it has also given up the 2nd spot to the UK. Market experts interpret China's reduction in Treasury holdings as a 'warning signal' for the US economy.

According to the US Treasury Department on the 18th, foreign holdings of US Treasuries reached a record high of $9.495 trillion in March. However, China's holdings decreased by $18.9 billion to $765.4 billion compared to the previous month. After recording an increase in January and February, it turned to a decrease in March. As a result, China was pushed to 3rd place, while the UK rose to 2nd with $779.3 billion. Japan holds the top spot with $1.1308 trillion. South Korea was 18th with $125.8 billion.

China's US Treasury holdings have steadily decreased since peaking at $1.316 trillion in November 2013. It fell from $1.184 trillion at the end of 2017 to $1.124 trillion at the end of 2018, and to $867 billion at the end of 2022. By the end of 2023, it had decreased to $816 billion.

The Financial Times (FT) analyzed that the reduction in China's US Treasury holdings is another warning signal following Moody's downgrade of the US credit rating. Alicia Garcia Herrero, chief economist at Natixis, stated, "China is slowly but steadily selling US Treasuries, which is a warning signal to the US," adding, "These warnings have been present for years, and the US should have taken action earlier."

Experts particularly note that these statistics are as of the end of March, before the US-China tariff war intensified. Brad Setser, a senior fellow at the Council on Foreign Relations (CFR), said, "China has shown a move to shorten the maturity of its US bond portfolio," adding, "There may have been changes in China's reserves over the past six weeks."

There is also a view that China could use US Treasuries as a card in US-China trade negotiations. However, there are also criticisms that the exact scale of China's US Treasury holdings is unclear. The FT pointed out, "China is increasing its holdings of US assets through third-party custodians, making the actual scale of holdings unclear." The increase in the UK's US Treasury holdings may also be because global investment banks headquartered in London have increased their US Treasury holdings, rather than the UK government directly purchasing them.

Reporter Hyein Lee hey@hankyung.com