China urges banks to curb US Treasury exposure over risk concerns

Yesterday 11:50

By: Dakir Madiha

China urges banks to curb US Treasury exposure over risk concerns

Chinese regulators have quietly instructed domestic financial institutions to limit their exposure to US government debt, citing concerns over concentration risk and market volatility, according to people familiar with the matter. The move, first reported by Bloomberg, marks the latest step in Beijing’s long-running effort to reduce reliance on US sovereign debt.

Authorities have told commercial banks to restrict new purchases of US Treasury bonds and asked institutions with large existing holdings to gradually scale back their positions, several sources said. The guidance does not apply to China’s official Treasury holdings, which are managed separately by the People’s Bank of China.

The regulatory directive was issued days before US President Donald Trump and Chinese leader Xi Jinping held a phone call on February 4 that both sides described as productive. Trump said the discussion was long and detailed and characterized bilateral relations as extremely good, with the two leaders agreeing to reciprocal state visits later this year.

Financial markets reacted swiftly to reports of the guidance. Yields on the 10-year US Treasury rose to 4.25 percent after trading near 4.22 percent earlier, according to Bloomberg data.

The latest step fits into a decade-long trend in which China has steadily reduced its support for US government debt. Official Chinese holdings of US Treasuries fell to $682.6 billion in November 2025, the lowest level since 2008, based on data from the US Treasury Department. That figure represents a decline of more than 47 percent from the peak of roughly $1.32 trillion recorded in November 2013.

Once the largest foreign holder of US government debt, China has dropped to third place, behind Japan and the United Kingdom. Japan holds about $1.2 trillion in US Treasuries, while Britain’s holdings stand at around $888 billion.

Analysts view Beijing’s reduced Treasury exposure as part of a broader strategy to diversify its vast foreign exchange reserves. China holds the world’s largest reserves, totaling $3.399 trillion as of January 2026. At the same time, the People’s Bank of China has increased its gold reserves for fifteen consecutive months, reaching 74.19 million fine troy ounces.

Shao Yu, chief economist at Fudan University’s Research Center for Scientific and Technological Innovation Management, described the buildup of debt as increasingly unsustainable. He said China no longer wants to remain heavily invested in a system where new borrowing is used to replace existing obligations.