China has reduced its holdings of US government debt to the lowest level in 18 years, while simultaneously extending a gold-buying spree that now stretches 17 consecutive months. The moves are reshaping global bond markets and adding to a broader shift in reserve currency dynamics.
The Numbers Behind the Shift
Data from the US Treasury show China’s position fell to roughly $800 billion, the smallest since 2006. The decline comes as Beijing continues to diversify its foreign-exchange reserves away from dollar-denominated assets. At the same time, the People’s Bank of China has been adding gold to its reserves every month since November 2022, according to official figures. That buying has pushed China’s gold holdings to about 2,200 tonnes, making it one of the largest official holders of the metal.
China has long been one of the biggest foreign holders of US Treasuries, alongside Japan. Its steady selling adds to pressure on yields, especially as the US government issues more debt to fund its deficit. Fewer bids from a major buyer can push yields higher, raising borrowing costs for the US government. Meanwhile, China’s gold purchases have helped support bullion prices, which have hit record highs this year. The shift also signals a gradual move away from the dollar as the world’s primary reserve currency, though the greenback still dominates.
A Long-Term Strategy?
Beijing has not publicly explained the rationale behind the dual moves. But the pattern suggests a deliberate effort to reduce reliance on the US dollar, particularly amid geopolitical tensions and US sanctions. Gold offers a non-sovereign asset that cannot be frozen or sanctioned. The 17-month buying streak is the longest since China began reporting its gold reserves in 2001. Other central banks, including those in Poland, India, and Turkey, have also been buying gold, but China’s scale makes its actions especially consequential.
What to Watch Next
The next Treasury International Capital data release, expected in a few weeks, will show whether China continued to sell in the most recent month. Analysts will also watch for any change in the pace of gold purchases. If the trend holds, it could further alter the landscape for both US debt markets and the global monetary system.
