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China’s recorded Treasury ministry fell below its UK holdings for the first time since the beginning of the century, highlighting the continued changes in the management of Beijing’s foreign reserves.
The Treasury Department’s value held by Chinese investors, recorded by US banks and custodians, fell to $765 billion at the end of March, falling from $784 billion the previous month. Data released late Friday shows that UK investors owned nearly $30 billion to $7790 billion.
The crossover will make UK investors the second largest foreign holder in the US Treasury after Japan. It is the first time that the UK has held higher than China since October 2000, and is the latest indication that Beijing is gradually diversifying from its US assets.
“China is selling slowly and steadily. This is a warning to the US,” said Alicia Garcia Herrero, chief economist in the Asia-Pacific at Natixis. “This warning has been there for years, but it’s not sudden. The United States should have acted on this.”
The data comes as a sign of the US administration’s attention following news that Moody’s, following Fitch and S&P, stripped away the world’s largest economy with a triple-A credit rating, citing rising debt and deficits.
Beijing has gradually reduced its official US Treasury holdings since its peak of over 1.3tn in 2011, diversifying into other assets, including bonds and gold from US institutions. Part of the decline in China’s holdings’ value may also reflect market movements.
Analysts believe China is increasing its share of US assets through third-party custodians, including Belgian Euroclear and Luxembourg’s Clearstream, obscuring the true level of its holdings. Treasury holdings due to Luxembourg’s value remained flat in March, but Belgium has increased by $7.4 billion since February.
China’s huge trove of treasure troves are the result of a multi-year trade surplus with the US that President Donald Trump is currently trying to cut. However, officials in the US administration have also expressed concern about the Treasury’s foreign sales, which boosts concessions and makes debt refinancing more expensive.
Since 2009, the percentage of Chinese financial holdings reached its highest level in March, which was the easiest to sell, the most liquid securities that can be sold.
“Based on visible data, there is no doubt that China has reduced the maturity of its US portfolio,” said Brad Sesser, a senior fellow at the Council of Foreign Relations and a former US Treasury employee.
The rise of recorded holdings in the UK does not reflect its own reserves. Rather, analysts say it reflects London’s role as a settlement for international capital.
European holders include insurance companies, banks and managers. Some hedge funds hold Treasury securities and rulings by selling futures and swaps.
Setser says that the UK number is “probably [reflects] “The increase in the Ministry of Finance held by Global Banks, the availability of administrative services in London, and some of the activities of hedge funds.”
Analysts said data showing the movement through the end of March does not reflect the actions Trump has taken after the so-called “liberation day” escalation of the trade war.
“In the last six weeks, it is possible that China has made significant changes to its preliminary control.
