China's Treasury holdings fall to 2008 low
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China's holdings of U.S. Treasury securities reached an 18-year low in July, new Treasury Department data shows.
Why it matters: It's not just China. Foreign governments are pulling back on buying Treasury securities, and hedge funds and other private investors are filling the void.
- That poses some risks to the ability of the U.S. to borrow money cheaply, as analysts say it could put upward pressure on borrowing costs.
Zoom in: China's holdings of Treasury securities fell to $618 billion in July, the lowest level since August 2008, when they were at $573.7 billion.
- China, the world's second-largest economy, has been moving away from these investments for the past decade and accelerated the shift after 2022, when the U.S. froze Russian assets and prompted a lot of countries to have second thoughts about storing wealth in America.
Yes, but: China may have moved some of its Treasury holdings to non-U.S. custodians, making it hard to truly assess the situation.
- Overall, these moves have been gradual, and holdings have remained stable.
Zoom out: For years leading up to the 2008 financial crisis, central banks were "price-insensitive" buyers of Treasury debt — they saw these holdings as an ultra-safe bet.
- Now, more price-sensitive hedge funds and private investors make up a larger share of buyers — these aren't all the buy-and-hold types.
- The problem? During times of stress, "sharp shifts in sentiment could trigger rapid sales and systemic stress," as Brookings senior fellow Gian Maria Milesi-Ferretti wrote recently.
