Currencies

China Shifts US Bond Holdings Beyond the Reach of Any Future Sanctions

  • China cut US debt holdings by 9% from the end of 2021 to July this year, according to Nikkei Asia. 
  • Meanwhile, the Cayman Islands saw a $38.5 billion rise in China’s Treasury holdings, and Bermuda saw a $7 billion increase.  
  • China may be protecting dollar-denominated assets from any future sanctions like the kind that froze Russia’s foreign currencies. 

China has steadily trimmed its holdings of US government debt this year and moved some bonds to offshore tax havens where they could be protected from any future sanctions, according to a report from Nikkei Asia.

Treasury Department data last week showed that Beijing’s holdings of US Treasury bonds hit $970 billion in July. While that’s up from $967.8 billion in June, which was the lowest since May 2010, the overall trend has been heading lower. For the year to date through July, China’s stash of Treasurys shows a 9% decline. 

Meanwhile, China’s Treasury holdings located in the Cayman Islands and Bermuda jumped by $38.5 billion and $7 billion, respectively.

Shifting them offshore could protect China’s dollar-denominated assets from the potential of future sanctions, like the kind that froze Russia’s foreign currency reserves, Nikkei said. 

After Russia invaded Ukraine early this year, more than $300 billion in Russian assets that were held in sanctioning countries were frozen.

A Chinese government source told Nikkei that the freeze of Russia’s assets “dealt a much bigger blow” than kicking Moscow out of the SWIFT global payments system. And any attempt to reunify Taiwan with mainland China by force could trigger similar sanctions that would put Beijing’s $3 trillion in foreign-currency reserves at risk.

And while its Treasury holdings drift lower, China’s gold imports more than doubled in August year over year to $10.36 billion, according to Nikkei.

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