In an effort to mitigate financial instability arising from concentrated exposures, Chinese regulatory authorities have issued instructions to domestic banks and other financial institutions to curb their purchases of U.S. Treasury bonds. This advisory targets institutions with significant holdings and aims to encourage the reduction of their existing bond portfolios. However, this recommendation explicitly does not extend to Chinese state-owned holdings, which remain unaffected, preserving the government’s strategic investment positions.
According to the latest figures from the U.S. Treasury department, as of November 2025, China’s cumulative holdings in U.S. Treasury securities amounted to approximately $682.6 billion. This places China as the third-largest foreign creditor following Japan and the United Kingdom. The scale of these holdings underscores the country’s substantial participation in U.S. debt markets, which has notable implications for both nations’ financial systems.
Economic commentator Peter Schiff has reflected on the potential ramifications of China’s initiative to scale back purchases of U.S. government debt. He predicts that this reduction will likely necessitate increased bond acquisitions by the Federal Reserve to maintain market stability. Consequently, Schiff warns that this shift may precipitate upward pressure on consumer inflation rates, exacerbating the cost of living and impacting household budgets.
The context for China’s directive appears to coincide temporally with diplomatic engagements, including a recent conversation between U.S. President Donald Trump and Chinese President Xi Jinping, indicating the geopolitical sensitivities surrounding cross-border financial flows.
China’s policy adjustment follows a precedent set by other international investors, such as Danish pension fund AkademikerPension. This fund, managing assets totaling around $25 million, has reportedly moved to offload U.S. Treasury assets amid concerns over credit risks linked to fiscal and political uncertainties in the United States. The fund's Chief Investment Officer, Anders Schelde, publicly questioned the credit quality and long-term sustainability of U.S. government finances, signaling broader skepticism among global bondholders.
Such concerns are underscored by the United States’ increasing federal debt, which now approaches $38 trillion, a figure that has prompted warnings from economists about systemic risks to global confidence in U.S. debt securities.
Despite apprehensions within the financial community, U.S. Treasury Secretary Scott Bessent has downplayed the validity of these credit risk concerns. Nonetheless, policymakers such as Senator Elizabeth Warren (D-Mass.) have highlighted the potential repercussions if global appetite for U.S. Treasury bonds diminishes, cautioning that reduced international demand could drive up borrowing costs domestically. This, in turn, might translate into higher interest rates for consumer loans, including mortgages and automobile financing, thereby affecting the broader economy.
Insight from industry executives further elucidates these dynamics. Geng Ngarmboonanant, managing director at JPMorgan Chase & Co. and former deputy chief of staff for ex-Treasury Secretary Janet Yellen, noted that foreign ownership of U.S. debt has markedly declined over the past decade. Where once nearly 40% of U.S. governmental debt was held by international investors in 2010, this proportion has decreased to approximately 15%. Ngarmboonanant suggests that such a trend should prompt vigilance among market participants regarding the sustainability of demand for U.S. bonds.
Adding to the complex backdrop, data compiled by Otavio Costa of Crescat Capital LLC indicates that the Federal Reserve has reduced its holdings of U.S. government debt by an estimated $1.5 trillion since May 2022. This contraction in the Federal Reserve’s balance sheet may intersect with the reduced appetite among foreign investors, thereby influencing Treasury market dynamics and interest rates.
Together, these developments encapsulate growing uncertainties surrounding the global demand for U.S. treasury securities and highlight the intricate balance of domestic and international forces shaping financial markets.