China reduced its holdings of U.S. Treasury securities to $590.7 billion in August, the lowest level in roughly 18 years, according to data released by the U.S. Treasury Department. The total fell by $27.3 billion from July’s $618 billion. The decline continues a long-term trend in which Beijing has gradually reduced direct exposure to U.S. government debt while diversifying its foreign-exchange reserves.
The August drop was substantial
China’s holdings fell by more than $27 billion in a single month. That pushed the reported total to its lowest level since 2008.
The change was large enough to attract attention even within a long-term pattern of gradual reduction.
Japan also sold Treasuries
Japan, the largest foreign holder of U.S. government debt, reduced its holdings by about $35.6 billion to roughly $1.07 trillion.
Sales by Japan and China were partly offset by increased holdings in other countries, including the United Kingdom and Canada.
Total foreign holdings still increased
Despite the reductions by the two major Asian holders, total foreign holdings of U.S. Treasuries rose to about $9.33 trillion from $9.25 trillion in July.
That distinction is important: the data do not show a broad foreign retreat from U.S. government debt.
China has been diversifying for years
Beijing once held well above $1 trillion in U.S. Treasuries. Over time, the People’s Bank of China and other reserve managers have reduced that position while increasing exposure to gold and other assets.
The shift reflects a combination of reserve management, currency policy and geopolitical risk.
Geopolitical tension is part of the calculation
Relations between the United States and China remain strained over trade, technology controls and security issues. Large official holdings of another country’s government debt can become politically sensitive in that environment.
Diversification gives reserve managers more flexibility if financial sanctions or market disruptions become a concern.
U.S. fiscal worries are another factor
America’s public debt has continued to rise, while long-term Treasury yields have reached levels not seen in many years. Higher yields can create mark-to-market losses for existing bond holders.
Reserve managers therefore have to balance liquidity and safety against interest-rate risk.
The dollar remains difficult to replace
Even as China reduces Treasury exposure, the U.S. dollar remains the dominant global reserve currency. The Treasury market is far deeper and more liquid than most alternatives.
That makes rapid diversification difficult without sacrificing liquidity or increasing risk.
Gold has become more attractive
Central banks around the world have increased gold purchases in recent years. Gold carries no sovereign-credit risk and can serve as a hedge against geopolitical uncertainty.
For China, gold also provides a reserve asset that is not directly tied to the U.S. financial system.
TIC data have important limitations
The U.S. Treasury warns that country-level holdings are based largely on custodial records. If a Chinese investor holds Treasuries through an account in another financial center, the data may attribute those securities to the custodian country rather than the true owner.
That means the figures are useful but not a perfect measure of ultimate ownership.
Foreign demand still matters for U.S. borrowing costs
The United States must issue large amounts of debt to finance federal deficits. Strong foreign demand helps absorb that supply.
If major official investors consistently reduce holdings, the Treasury market may need to rely more heavily on domestic institutions and private foreign buyers.
The long-term trend will be watched closely
One month of selling does not define China’s reserve strategy, but the new 18-year low reinforces a pattern already visible for years.
Investors will watch whether September data show another decline or a stabilization after August’s sharp reduction.
Sources
- U.S. Department of the Treasury, Treasury International Capital data for August 2026
- South China Morning Post, Oct. 17, 2026
- Anadolu Agency, Oct. 17, 2026
