Trade War : China Drastically Cuts Its Holdings of U.S. Treasury Bonds and Bets on Gold
By
Yassine Atoui
3 May 2025
China is quietly but firmly accelerating its strategy to shift its $3.2 trillion foreign exchange reserves by sharply reducing its investments in U.S. Treasury bonds in favor of gold and alternative assets seen as less vulnerable to political pressure from Washington.
This strategic shift was revealed by the
Financial Times and confirmed by the latest U.S. financial data.
27% Drop in U.S. Treasury Bonds Over Two Years
Between January 2022 and December 2024, China reduced its holdings of U.S. Treasury bonds by 27%, bringing them down to $759 billion, according to official U.S. statistics. In comparison, the decrease between 2015 and 2022 was just 17%, illustrating a marked acceleration in China’s de-dollarization efforts.
Instead of a massive selloff that could have destabilized financial markets, Beijing opted for a strategy known as “Téngnǔ,” or a “cautious walk on a tightrope.” This approach aims to balance yield, liquidity, and safety, while preparing Chinese institutions for a potentially adversarial economic environment with the United States.
Gold Gains Importance in China’s Reserves
The other pillar of this strategy lies in strengthening gold reserves. Since late 2022, the People’s Bank of China has increased its gold purchases by 18%, raising gold’s share of total reserves to 6%, up from just 2% a few years earlier.
According to James Steel, an analyst at HSBC, this is a “moderate, steady, but very well-thought-out” policy designed to reduce dependence on the U.S. dollar while bolstering long-term stability in China’s reserves.
A Shift Toward Semi-Governmental U.S. Assets
At the same time, China has increased its holdings in bonds issued by Fannie Mae and Freddie Mac, two U.S. government-sponsored enterprises that specialize in mortgage lending. These bonds are seen as less conspicuous but still liquid alternatives to Treasury securities.
Between 2018 and 2020, China boosted its investments in these assets by 60%, reaching $261 billion.
Sanctions Preparedness: A Lesson from Moscow
This cautious realignment comes amid a turbulent geopolitical context. The Russian precedent—when Western powers froze Russia’s dollar reserves in 2022 following the war in Ukraine—remains vivid in the minds of Chinese policymakers. A 2024 study by Tsinghua University concluded:
“The freezing of Russian assets shows the extent of American financial hegemony. China must learn from it.”
Limits to Diversification
Nevertheless, voices within the Chinese system are urging caution regarding this reallocation strategy. Eswar Prasad, an economist at Cornell University, argues that truly viable alternatives to Treasury bonds remain scarce, particularly in terms of scale and security.
Some Chinese officials acknowledge that it might be necessary to sacrifice part of the return in exchange for greater security, in anticipation of a more intense political or trade confrontation with Washington.
A Quiet Shift with Potential Global Impact
China is thus carrying out a methodical and geopolitically driven transformation of its reserve strategy. Not through a sudden break, but with growing determination, Beijing aims to reduce its exposure to a U.S.-dominated monetary system by betting on the stability of gold, prudent asset diversification, and resilience in the face of a potential global monetary conflict.
A quiet pivot—yet one that could have lasting consequences for global financial balances.
China is quietly but firmly accelerating its strategy to shift its $3.2 trillion foreign exchange reserves by sharply reducing its investments in U.S. Treasury bonds in favor of gold and alternative assets seen as less vulnerable to political pressure from Washington. This strategic shift was...
news-tunisia.tunisienumerique.com