China US Treasury Holdings Fall 9% In 2022: Is Beijing Getting Wary Of Possible Western Sanctions?

China’s holdings of U.S. Treasury securities remain below the $1 trillion mark since May. A likely reason could be the country is increasingly looking to reduce its dependence on the dollar.

Economic sanctions on Russia are likely to have raised concerns among authorities about the risks of relying too much on the greenback. Nikkei Asia first reported the story.

This assumes significance amid the current tensions between China and Taiwan. 

What Happened: U.S. government data shows China’s holdings of U.S. Treasury securities rose marginally to $970 billion in July 2022 as compared to $967.8 billion in June. However, this is still lower than the $1.08 trillion mark seen in November 2021. Also, since the beginning of the year, the holdings have fallen by $98.7 billion, i.e. over 9%.

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Why It Matters: This decline, which is the steepest on a half-year basis since 2016, coincided with a $38.5 billion hike in Treasury holdings in the Cayman Islands and a $7 billion surge in Bermuda, both well-known tax havens, reported Nikkei Asia.

This is indicative that China could be hiding some of its dollar assets in these jurisdictions, as a way to sidestep Western financial sanctions if its access to greenbacks is restricted, the report said.

Beijing also seems to be replacing some of its Treasury holdings with gold. China's gold imports more than doubled in August to $10.36 billion, according to the report. If China faces financial sanctions, Beijing could be cut off from much of its over $3 trillion in foreign-currency reserves, it said.