July 21, 2025 — China has continued its strategic reduction of U.S. Treasury securities for the third straight month, while significantly increasing its gold reserves, signaling a broader shift in its foreign exchange strategy.
According to the latest data from the U.S. Department of the Treasury, China’s holdings of U.S. Treasuries dropped to $749.1 billion by the end of May 2025, down from $757.2 billion in April and $765.4 billion in March.
This marks a continued decline from a peak of over $1.3 trillion a decade ago.
Concurrently, China has been aggressively stockpiling gold, with estimates suggesting its central bank has accumulated approximately $247.9 billion in gold reserves as of mid-2025, reflecting a deliberate move to diversify its assets amid geopolitical and economic uncertainties.
The reduction in U.S. Treasury holdings aligns with a broader reconfiguration of China’s financial strategy, driven by concerns over geopolitical risks and the long-term stability of dollar-denominated assets.
The People’s Bank of China (PBOC) has been steadily increasing its gold purchases, adding over 300 tons to its reserves since October 2022, with continuous buying reported for 16 consecutive months through May 2025.
Analysts, including macro strategist Adam Kobeissi, note that China’s share of U.S. Treasury holdings in its total foreign exchange reserves has fallen to approximately 22%, a near 15-year low, down from 37% in 2016.
Meanwhile, the share of gold in China’s reserves has risen to 4.3% from less than 2% in 2015, highlighting a clear pivot toward assets perceived as safer during times of economic and geopolitical uncertainty.
This shift comes as China’s total foreign exchange reserves remain substantial, estimated at $3.2 trillion as of January 2025.
The move to reduce reliance on U.S. Treasuries and increase gold holdings is seen by some economists as a hedge against potential sanctions, similar to those imposed on Russia following its 2022 invasion of Ukraine.
Craig Shapiro, a macro adviser at LaDuc Trading, suggests that China’s actions are partly motivated by the desire to mitigate risks associated with U.S. dollar assets, particularly as U.S. fiscal deficits continue to grow, with the national debt reaching $36.22 trillion as of February 2025.
Implications for the U.S. Treasury Market
China’s ongoing sell-off of U.S. Treasuries raises questions about the sustainability of foreign demand for U.S. debt, which accounts for roughly 30% of the Treasury market as of early 2025, down from a peak of 50% during the Great Financial Crisis.
Japan remains the largest foreign holder of U.S. Treasuries, with $1.1 trillion, while China has slipped to third place behind the United Kingdom, which holds $807.7 billion.
The reduction in China’s holdings, including a reported $8.2 billion sold in April 2025 alone, has coincided with rising Treasury yields, with the 10-year yield briefly hitting 4.5% in April amid trade tensions and market volatility.
However, fears of China “weaponizing” its Treasury holdings to disrupt U.S. markets are largely overstated, according to experts.
Dumping large quantities of Treasuries would likely devalue China’s remaining holdings and could strengthen the yuan, countering Beijing’s efforts to maintain a stable currency for export competitiveness.
U.S. Treasury Secretary Scott Bessent has argued that China’s holdings provide limited leverage, as any aggressive sell-off would be met with Federal Reserve intervention to stabilize markets.
A successful 30-year bond auction on April 10, 2025, with a high yield of 4.813% and a strong bid-to-cover ratio, further alleviated concerns of a buyer’s strike, suggesting resilient demand for U.S. debt despite China’s actions.
China’s aggressive gold accumulation reflects a broader trend among central banks globally, with JPMorgan Chase noting an acceleration in de-dollarization efforts as countries diversify away from U.S. dollar reserves.
The PBOC’s gold reserves are now at a record high, with some analysts, including Jim Rickards, speculating that China may hold additional unreported gold through entities like the State Administration for Foreign Exchange (SAFE).
This stockpiling is seen as a strategic move to reduce counterparty risk and hedge against economic uncertainties, including the potential for rising U.S. interest rates driven by persistent fiscal deficits.
Posts on X have echoed this sentiment, with users noting China’s consistent gold purchases and Treasury sales as evidence of a long-term strategy to limit exposure to U.S. sanctions and diversify its reserves.
For instance, a post from @GoldTelegraph_ on April 7, 2025, highlighted China’s record-high gold reserves amid escalating trade tensions.
However, these posts lack real-time data to confirm specific actions, and official Treasury data, released with a lag, remains the primary source for tracking China’s holdings.
Related: World’s Largest Pension Fund Now Loses $61bn As Dollar Falls
The Broader Economic Context
China’s moves come against the backdrop of heightened U.S.-China trade tensions, with President Donald Trump imposing 145% tariffs on Chinese goods in April 2025, prompting retaliatory 125% tariffs from Beijing.
Some investors initially speculated that China’s Treasury sales were a response to these tariffs, but analysts like Brad Setser of the Council on Foreign Relations argue that the reduction reflects a longer-term strategy rather than a short-term retaliatory move.
Setser estimates China’s total Treasury holdings, including those held through offshore custodians like Belgium’s Euroclear, at closer to $1.1 trillion, suggesting a more stable overall position than headline figures indicate.
The broader implications for the U.S. economy are significant but complex.
Rising Treasury yields could increase borrowing costs for the U.S. government and businesses, potentially impacting mortgage rates and consumer spending.
A Newsweek report on April 18, 2025, noted that a sudden dump of China’s $760 billion in Treasury holdings could push mortgage rates higher, though experts like Steve Hanke, a former Reagan administration economist, argue that such a move would harm China’s own exchange rate management.
Meanwhile, the Federal Reserve’s purchase of $43.6 billion in Treasuries in May 2025 has sparked debate about a potential “stealth QE” operation to counter foreign sell-offs, though no direct link to China’s actions has been confirmed.
China’s continued reduction of U.S. Treasury holdings and its aggressive gold stockpiling reflect a calculated effort to diversify its reserves and mitigate risks in an uncertain global economic landscape.
While this shift poses challenges for the U.S. Treasury market, the likelihood of a disruptive “dump” remains low due to the mutual economic risks involved.
As central banks worldwide increase gold holdings and reduce dollar exposure, the trend underscores a gradual but notable reconfiguration of the global monetary order. Investors and policymakers will continue to monitor China’s actions closely, particularly as trade tensions and U.S. fiscal challenges persist.
Also Read: US Banking Giants Now Grapple with $172.28bn in Unrealized Losses
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