The U.S. Department of the Treasury reported that China sold approximately $18.9 billion in U.S. Treasuries in March, reducing its holdings from $784.3 billion in February to $765.4 billion. The move came as trade tensions between the world's two largest economies intensified, prompting fresh scrutiny of dollar asset safety.
China Falls to Third-Largest U.S. Debt Holder
According to the Treasury International Capital (TIC) report, China's March reduction of 2.4% pushed its total holdings to $765.4 billion, placing it behind the United Kingdom and Japan. Japan remains the largest holder with over $1 trillion in U.S. debt.
Notably, China had increased its Treasury positions by more than $20 billion in February, even as the first round of U.S. tariffs was announced. The reversal in March signals a strategic shift by Beijing as tariffs escalated—exceeding 100% on average and effectively creating a trade embargo—prompting authorities to adjust foreign reserve management.
Former Central Bank Adviser Urges Safeguards
Yu Yongding, a former adviser to the People's Bank of China, stated: "China must have a set of countermeasures through repeated scenario planning to safeguard the security of its overseas assets." He implied that U.S. Treasuries, as China's largest overseas holding, face risks such as default or asset freeze, making reduction a necessary risk management step.
Moody's downgraded the U.S. sovereign credit rating from AAA to Aa1 in April, citing "a significant increase in government debt and interest payment ratios over more than a decade, surpassing levels of similarly rated sovereigns." This marks the first such downgrade by Moody's and further undermines the perception of U.S. debt as a risk-free asset.
Trade War and Dollar Credit: Potential Implications for Crypto
China's Treasury sale and Moody's downgrade together highlight cracks in the dollar-based credit system. While central banks currently face limited alternatives to U.S. debt for liquidity, the long-term trend may push diversification into gold, other currencies, and digital assets.
Some market observers believe sovereign credit downgrades could accelerate institutional allocation to cryptocurrencies like Bitcoin, which gained brief attention after the Moody's announcement in April. However, the broader market remains constrained by liquidity tightening from the trade war. Japan, the largest holder, has not significantly altered its holdings. European nations have generally increased theirs, illustrating divergent capital flows. If trade negotiations stall, China may further reduce its Treasury holdings, pressuring yields and the dollar, indirectly impacting risk asset pricing.
(This article is based on the U.S. Treasury TIC report, Moody's rating notice, and public analyst commentary. It is not investment advice.)