China continues to sell U.S. Treasuries, falling to third place in the world. Is it increasing its gold holdings to reduce its exposure to the U.S. dollar?

According to the data released by the U.S. Treasury last Friday, China continues to sell U.S. Treasuries and has been overtaken by Japan and the UK, falling to the third-largest U.S. Treasury holder globally. Many believe that China's recent reduction in U.S. Treasury holdings highlights Beijing's efforts to diversify its reserves and reduce dependence on the United States. Since Trump initiated the tariff war, it triggered a comprehensive sell-off of U.S. Treasuries, U.S. dollars, and U.S. stocks, making this data particularly noteworthy. In 2019, China was still the largest holder of U.S. Treasuries but was later surpassed by Japan. The latest March data shows that the UK has overtaken China for the first time in over twenty years. Currently, Japan holds $1.13 trillion in U.S. Treasuries, the UK holds $779.3 billion, and China holds $765.4 billion, ranking third. Since President Trump launched an aggressive tariff war and repeatedly accused U.S. economic partners of "cheating" the United States, foreign investors' demand has been a focal point in the bond market. After the "Liberation Day" on April 2, it triggered a comprehensive sell-off of U.S. Treasuries, U.S. dollars, and U.S. stocks. However, as of the end of March, there was no evidence of a comprehensive sell-off of U.S. Treasuries by various countries. In March, countries like Japan, the UK, Canada, and Belgium increased their Treasury holdings. China achieved a net sale of $27.6 billion in long-term U.S. Treasuries. Many believe that China's recent reduction in U.S. Treasury holdings highlights Beijing's efforts to diversify its reserves and reduce dependence on the United States. The People's Bank of China has been continuously purchasing gold since November last year, which has also supported gold's recent trend. However, a former U.S. Treasury official and current Council on Foreign Relations member Brad Setser stated on X that he believes China's change is "shortening its investment portfolio's duration, such as increasing deposits, rather than any real move away from the dollar." The currently published data is from March, before the tariff war officially began. Whether central banks will reduce U.S. Treasury holdings afterward remains to be seen in next month's data.

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