China is accelerating the implementation of a strategic plan to reshape its wallet of foreign reserves of $ 3.2 trillion, by reducing its exposure to US treasury bonds and increasing its investments in gold and alternative assets, amid increasing fears of the risks of sanctions and political fluctuations in Washington.
The Financial Times reported that the state administration for foreign criticism in China “SAFE” began an internal review after the amendment of the administration of US President Donald Trump to the two companies of the “Vanie May” and “Freddy Mac” company, which are supported by the US government and exporting backed mortgage bonds.
According to the report, Chinese officials look at these bonds, or even ownership classes in the two companies, as possible alternatives to US Treasury bonds.
A gradual reduction in holdings and an increasing purchase of gold
American data indicated that China reduced its official possession of treasury bonds by 27% between January 2022 and December 2024 to reach 759 billion dollars, compared to a decrease of only 17% during the period from 2015 to 2022.
Instead of the sudden sale that might destabilize the markets, Beijing adopted the “Tingino” strategy (cautious maneuvering on the tight cord), which aims to achieve a balance between liquidity, safety and return, according to one of the well -informed sources.
On the other hand, China’s possessions of bonds from American semi -government entities such as “Vanny May” increased by 60% between 2018 and 2020, to reach 261 billion dollars.
“It is clear that these bonds are the most logical alternative to treasury bonds in the American market, and China’s interest in them is more known than most major central banks.”
In a parallel context, China’s focus on buying gold has increased. According to official data, the gold bias at the Chinese Central Bank increased by 18% since late 2022, to reach 6% of the total reserves, compared to only 2% years ago. “The moderate and regular gold is a completely studied step,” said James Steel, chief of precious metal analyst at HSBC.
Fears of the freezing of assets and the erosion of purchasing power
Beijing is partly due to fears that its dollar assets will be frozen if the confrontation with Washington escalated, similar to what happened with Russia in 2022. In this context, researchers from the University of Tsinghua wrote in a research paper in 2024: “The freezing of Russian origins clearly reminds the dominance of the United States on the global financial system … and lessons for China are clear.”
Yong Deng, a former member of the Chinese Central Policy Committee, warned of a plan that American media circulated about converting treasury bonds into 100 -year -long bonds without interest, in exchange for reducing customs duties, describing this as “the great threat that may cost China a high price.”
The limits of the diversification strategy
Despite the diversification efforts, experts warned of the limited alternatives, as Aswar Brasad, a professor at the University of Cornell, said: “The current strategy may simply reach its limits due to the scarcity of good alternative assets.”
A Chinese government official added: “We may have to sacrifice a part of the returns, but staying in US Treasury bonds in the event of an escalation of the dispute may mean losing our investments completely.”
With the rise in American customs duties and the deterioration of political relations, China has become an imperative to alleviate its exposure to the American economy. While Beijing confirms that it does not seek a collective sale, the trend towards a gradual restructuring of its investment portfolio appears to be accelerated during the coming period, in an effort to secure its reserves from any possible financial escalation.
