Chinese mainland's holdings of U.S. Treasuries in Aug fall to a 14-year low

Chinese mainland's holdings of U.S. Treasuries bonds further fell to $805.4 billion in August, marking a fifth consecutive monthly decline and hitting a 14-year low since May 2009, according to data released by the U.S. Department of the Treasury on Wednesday.

As the second-largest holder of U.S. Treasury bonds, Chinese mainland’s total holdings dropped below the $1 trillion level in April 2022. Holdings fell from August 2022 to February 2023, with a slight pick-up in March of $20.3 billion, before falling again in April.

If the trend continues, the holdings may further decline blow $800 billion in the near future, market observers said.

China's reduction of the U.S. Treasuries bonds will be a long-term trend as the nation needs to diversify its holdings of overseas assets; while the investment value of the U.S. dollar-denominated assets is irreversibly moving on a slow, but decline trajectory alongside the U.S.’ losing economic strength in the long run, Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times on Thursday.

China will make further reductions, Xi said, forecasting that eventually the holdings may drop to around $700 billion so that the country could achieve a relatively diversified holdings of overseas assets.

“Concentration of holdings in a country’s currency may result in being subject to the political and economic policies of that country,” Xi said, adding that the relationship between China and the U.S. is clearly not in a harmonious stage now.

In the long-term perspective, the U.S. Treasuries bonds itself is seeing decreasing attraction to global investors. “It is a very gradual but decided trend as its foundation, the U.S. economic strength, is on the same trajectory,” Xi said.

On August 1, rating agency Fitch Ratings downgraded the U.S. long-term bonds rating to "AA+" from "AAA", citing fiscal deterioration over the next three years and a steady deterioration in governance over the past two decades.

Many other countries, especially some developing countries, have seen similar trends of reducing the holdings as an increasing number of countries and regions are adopting non-dollar currencies to settle their trades or other transactions. Reducing dependence on the U.S. dollar has become an increasingly clear trend worldwide, according to Xi.