China looks like it's dumping Treasury debt but may actually be stashing it in Canada and Belgium

Key Points:

• China’s reported holdings of U.S. Treasury securities have sharply declined from $1 trillion in April 2022 to $591 billion in August 2023, the lowest in 18 years, according to U.S. data primarily collected from domestic custodians.
• Skepticism exists about the extent of China’s Treasury sell-off, as significant increases in holdings by countries like Canada and Belgium suggest China may be shifting assets to overseas custodians, masking true ownership in official U.S. data.
• China’s motivation to diversify away from the U.S. dollar includes geopolitical tensions such as U.S. sanctions on Russia, the Trump-era trade war, and efforts to challenge U.S. financial dominance, while maintaining massive trade surpluses that require recycling of foreign reserves.
• Experts estimate that when accounting for holdings in non-U.S. custodians across Canada and Europe, China’s total U.S. financial holdings could be much higher than reported, possibly between 50% and 55% of its reserve portfolio, indicating complex strategies to obscure actual Treasury ownership.
• The trend reflects China’s broader economic strategy of export-led growth amid domestic challenges and its attempt to balance geopolitical risks with financial asset management.