In what is seen as a move to insulate its financial system from external shocks, Chinese regulators have reportedly instructed the nation’s major financial institutions to scale back their holdings of U.S. Treasuries. The directive, issued verbally to top-tier banks in recent weeks, signals Beijing’s intensifying push to reduce its exposure to the U.S. dollar.
According to a Bloomberg report citing anonymous sources, the People’s Bank of China (PBOC) and the National Financial Regulatory Administration pointed to “concentration risks” and “extreme market volatility” as justification for the move. While the guidance does not apply to China’s official state reserves, it targets the approximately $298 billion in dollar-denominated bonds held by Chinese commercial lenders.
Once the primary creditor to the United States, Beijing has seen its holdings nearly halve from a 2013 peak of $1.3 trillion to just $682.6 billion as of late 2025—the lowest level since the global financial crisis in 2008. China now sits as the third-largest foreign holder of U.S. debt, having been overtaken by Japan in 2019 and the United Kingdom in 2024.
Analysts view this regulatory pressure as a pragmatic defense against the potential weaponization of the U.S. financial system. Following the freezing of Russian foreign reserves in 2022, Beijing has accelerated efforts to build a sanctions-proof economy. By reducing Treasury holdings, China also aims to strengthen its monetary sovereignty and decouple its economic cycle from the Federal Reserve’s interest rate shifts, which have recently caused sharp fluctuations in the yuan.
Furthermore, China has pivoted toward asset diversification by increasing its gold reserves for 14 consecutive months and shifting some Treasury holdings to custodial accounts in Europe, notably Belgium, to obscure the true scale of its exposure.
Despite the directive, the U.S. Treasury market remains resilient, with foreign holdings recently hitting a record $9.4 trillion, the Bloomberg report noted. The report also cited recent comments by U.S. Treasury Secretary Scott Bessent, who suggested that as China exits, other global buyers are stepping in.
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The timing of this regulatory guidance is delicate, occurring just months before a planned summit between President Xi Jinping and Donald Trump in Beijing. While official rhetoric frames the move as market risk diversification, the broader message is clear: China is no longer willing to be a passive passenger in a dollar-dominated world.
“China might be an economic whale, but it is tired of swimming in a dollar sea,” said one analyst from the Lowy Institute. “This is about ensuring the system can function independently if relations with the West deteriorate further.”
- What did China order banks to do? Regulators told major lenders to cut U.S. Treasury holdings.
- Why is Beijing reducing exposure? To limit dollar risks, volatility, and potential sanctions.
- How big are China’s holdings now? They’ve fallen to $682.6B, the lowest since 2008.
- What’s the global impact? Other buyers are filling the gap as China diversifies with gold and Europe custodial accounts.
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