On Wednesday (September 16th), the US Department of the Treasury released data on international capital flows, showing that as of the end of July, the US Treasury bonds held by Mainland China amounted to $618 billion, a decrease of $15.4 billion compared to June’s $633.4 billion, marking the lowest level since 2008. China currently ranks as the third largest foreign holder of US debt behind Japan and the UK.
In November 2013, China held over $1.3 trillion in US debt. Since then, there has been a general downward trend, with the current holdings dropping to $618 billion, a decrease of over $680 billion in over a decade, which is more than half.
However, the $15.4 billion decrease from June to July cannot be directly interpreted as China “selling $15.4 billion in US Treasuries” during that month. The US Treasury Department also cautioned that this monthly data is difficult to accurately determine changes in US asset holdings by individual countries.
The US Treasury Department stated that this data is primarily based on where securities are held by financial institutions. If investors from one country buy US Treasuries and have them held by financial institutions in another country, the data could attribute the Treasury bonds to the latter country.
Therefore, the $618 billion figure reflects the current scale of US Treasuries held under the name of Mainland China, and cannot be used to accurately assess how much US debt Chinese investors ultimately hold.
According to the Financial Times, while China has reduced its holdings of US Treasuries in recent years, it has also been increasing its assets in gold and other investments. The report also mentioned that China holds assets like US government agency bonds and stocks.
The People’s Bank of China has been continuously increasing its holdings of gold in recent years. Following the outbreak of the Russia-Ukraine war in 2022, concerns have grown about the risks of sanctions on foreign exchange reserves, as the US and its allies froze a portion of Russia’s overseas reserves. The Financial Times cited analysts who believe this is one of the factors driving China to increase its holdings of gold and other assets.
As China’s holdings of US Treasuries decline, the total amount of US Treasury securities held by foreign investors in July also decreased.
However, looking at the broader flow of funds, foreign capital still flowed into the US during that month. US Treasury Department data shows that in July, including long and short-term securities, and bank funds, foreign funds had a net inflow of $83.7 billion, with private funds accounting for $73.5 billion, and official foreign funds accounting for $10.2 billion.
Prior reports by the Financial Times citing Deutsche Bank data revealed that the recent inflow of international funds into US stocks is equivalent to 2.8% of the US Gross Domestic Product (GDP), higher than the 2% flowing into US Treasuries. The report suggests that factors such as the boom in artificial intelligence driving corporate profits and stock market gains are attracting foreign investment into US stocks.