China Shifts US Bond Holdings Beyond the Reach of Any Future Sanctions

  • According to Nikkei Asia, China cut US debt by 9% between the end of 2021 and July this year.
  • Meanwhile, the Cayman Islands saw a $38.5 billion increase in China’s government bonds, and Bermuda saw a $7 billion increase.
  • China can protect dollar-denominated assets from any future sanctions, such as the kind that froze Russia’s foreign exchange.

According to a report by Nikkei Asia, China has been steadily decreasing its holdings of US government debt this year and moving some bonds to offshore tax havens where they could be protected from any future sanctions.

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Data from the Treasury Department last week showed Beijing’s holdings of US Treasuries reached $970 billion in July. While that’s up $967.8 billion in June, the lowest since May 2010, the overall trend is down. For the year to date through July, China’s treasury bills are down 9%.

Meanwhile, Chinese government bonds in the Cayman Islands and Bermuda rose by $38.5 billion and $7 billion, respectively.

Moving them abroad could protect China’s dollar-denominated assets from the potential of future sanctions, such as the kind that froze Russia’s foreign exchange reserves, Nikkei said.

After Russia invaded Ukraine early this year, more than $300 billion in Russian assets held in sanctioned countries were frozen.

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A Chinese government source told Nikkei that the freeze on Russia’s assets has dealt “a much bigger blow” than kicking Moscow out of the global SWIFT payment system. And any attempt to forcibly reunite Taiwan with mainland China could lead to similar sanctions that would jeopardize Beijing’s $3 trillion in foreign exchange reserves.

And while government bonds are lowering, China’s gold imports more than doubled year over year to $10.36 billion in August, according to Nikkei.

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