China is shifting US bond holdings beyond the scope of any future sanctions
- China reduced its holdings of US debt by 9% from the end of 2021 to July of this year, according to the Nikkei Asia Index.
- Meanwhile, the Cayman Islands saw an increase of $38.5 billion in Chinese Treasury holdings, and Bermuda saw an increase of $7 billion.
- China may protect dollar-denominated assets from any future sanctions such as those that have frozen Russia’s foreign currency.
China has steadily reduced its holdings of US government debt this year and moved some bonds to offshore tax havens where they can be protected from any future sanctions, according to a report from Nikkei Asia.
Treasury data last week showed that Beijing’s holdings of US Treasuries reached $970 billion in July. While this is up from $967.8 billion in June, the lowest level since May 2010, the overall trend has been to the downside. Year-to-date to July, China’s stock of Treasurys showed a 9% decrease.
Meanwhile, Chinese Treasury holdings located in the Cayman Islands and Bermuda jumped by $38.5 billion and $7 billion, respectively.
Transferring them abroad could protect China’s dollar assets from possible future sanctions, such as those that froze Russia’s foreign exchange reserves, the Nikkei said.
After Russia invaded Ukraine early this year, more than $300 billion in Russian assets that had been held in sanctions countries were frozen.
A Chinese government source told the Nikkei that the Russian asset freeze had “dealed a much bigger blow” than Moscow’s expulsion from the SWIFT global payments system. Any attempt to forcibly reunify Taiwan with mainland China could lead to similar sanctions that would jeopardize Beijing’s $3 trillion in foreign exchange reserves.
As Treasury holdings drifted lower, China’s gold imports doubled in August year-on-year to $10.36 billion, according to the Nikkei Index.