China trimmed its holdings of US Treasuries to an 18-year low in April as it continued to diversify its foreign reserves amid heightened geopolitical tensions and growing concerns over the independence of the US Federal Reserve.
Data released by the US Treasury Department on Thursday showed that Chinese investors’ US Treasury holdings fell from US$652.3 billion in March to US$651.1 billion in April, the lowest level since September 2008, based on figures compiled by financial data provider Wind.
Overall foreign holdings of US Treasuries climbed to US$9.353 trillion in April from US$9.349 trillion a month earlier, with increases from several major holders including Japan and the United Kingdom.
In April, the US-Israel war on Iran entered a fragile phase as ceasefire violations and stalled negotiations cast doubt on prospects for a lasting settlement, adding to concerns over global stagflation pressures.
Concerns over the Federal Reserve’s independence also deepened that month, with Kevin Warsh in line to take the helm of the US central bank. While he provided assurances during his April 21 confirmation hearing that he would “absolutely not” become the US president’s “human sock puppet”, investors remained wary of potential political influence over interest-rate decisions.
On Wednesday, Warsh’s first policy meeting as Fed chairman delivered a widely expected decision to hold rates steady, and analysts said it also sent a noticeably more hawkish message on inflation.
In March last year, China slipped to third place among foreign holders of US Treasuries – behind Japan and the United Kingdom – continuing a gradual but uneven retreat that began during US President Donald Trump’s first term.
Japan, the largest foreign holder of US Treasuries, increased its holdings to US$1.21 trillion in April from US$1.19 trillion in March, while the UK’s holdings rose to US$937.5 billion from US$926.9 billion.
Canada, the seventh-largest foreign holder, cut its holdings by more than US$42 billion to US$397.1 billion in April. Ireland, the ninth-largest holder, reduced its holdings to US$345.3 billion from US$355.2 billion.
In contrast to its broader sell-off of US Treasuries, China has steadily added to its gold reserves, widely viewed as a hedge against geopolitical and financial risks. Official data showed the People’s Bank of China increased its bullion holdings for a 19th consecutive month in May, bringing the total to 74.96 million troy ounces (2.3 million kg).
Last year, China was the fourth-largest per-country buyer of the precious metal – which has overtaken US Treasuries to become the world’s top reserve asset – after Poland, Kazakhstan and Brazil, the European Central Bank (ECB) said in a report released early this month.
Gold accounted for 27 per cent of global official foreign reserves at the end of last year, it said, with US Treasury bonds falling to 22 per cent.
It is estimated that China has bought more than 11.25 million troy ounces of gold since early 2022, more than any other country. -- SOUTH CHINA MORNING POST
