China instructed banks to dial back their holdings of US Treasury debt this week, a move that sparked fresh conversations about “Sell America.”
Chinese regulators said the move was related to volatility and concentration risks in US debt, and it wasn’t framed specifically as a critique of the dollar-led financial system. Yet, market commentators see it, in part, as an update to a broader geopolitical narrative that’s gripped markets in the last year.
Bloomberg reported that China’s banks collectively hold $298 billion in US dollar-denominated bonds, though is not known much of that is made up of US Treasurys versus things like US corporate debt.
The impact on treasury yields has been minimal so far, but economists and market pros say the move raises concerns about future knock-on effects.
Here’s what they’re saying.
Desmond Lachman, American Enterprise Institute
A senior fellow at the economic policy think tank, Lachman has previously raised concerns about the position of the US as a global economic superpower.
He said this week that he is deeply concerned about what China’s decision may mean for the US, particularly as other nations have already begun shifting away from dollar-denominated assets.
“[The US] desperately needs foreigners to keep buying US Treasuries to provide that financing, and the last thing that it needs is for foreigners to start selling their Treasurys,” he told Business Insider, adding that foreign investors hold about 30% of the outstanding amount of US Treasurys.
“The drying up of foreign buying of our government’s bonds could set us up for a bond market and dollar crisis.”
Brad Setser, Council on Foreign Relations
Setster isn’t as concerned about the market implications of China’s move. He sees the decision as a reflection of China’s need to make changes in order to help stabilize its own economy and guard against volatility from the US after struggling in recent years.
“Global investors should consequently be paying much more attention to the flows tied to China’s currency management,” he advised. “Despite the recent warning, my strong suspicion is that Chinese state institutions will struggle to find good alternatives to the Treasury market if they are buying $50 billion or more in the market a month to control the pace of yuan appreciation.”
Jai Kedia, Cato Institute
Kedia, an economist at the libertarian think tank, shares Setser’s perspective that investors shouldn’t regard China’s decision as a geopolitical development. He told Business Insider that while he expects China to continue selling off its US Treasurys, it likely won’t yield a sizable negative impact for the US.
“People have a way overestimated opinion of how much value of US government debt China actually holds,” he stated. “The value isn’t anywhere near enough to crash our markets or anything like that.”
Kedia acknowledged that a massive offloading of government bonds would likely impact the market, but he added that he doesn’t see that as likely
Liqian Ren, WisdomTree Asset Management
Ren, who serves as director of modern alpha at asset manager WisdomTree, sees it as more explicitly geopolitical than other commentators.
“The move is largely geopolitical, with financial factors secondary,” she said. “China uses US treasury holdings for part of its currency management, making rapid liquidation unlikely. While near-term risks remain low, preparations for potential regional conflict involving Japan or the Taiwan Strait are reinforcing incentives on both sides to reduce financial dependence.”
In her view, China isn’t likely to be a net buyer of US government debt until the two nations reach an equilibrium.
Yan Wang, Alpine Macro
The market research firm’s chief China strategist thinks the regulatory guidance is mostly about risk management. That said, he thinks geopolitical tensions are a factor in China’s decision as well.
“China has been reducing its holdings of US assets—particularly Treasurys—in recent years, and the pace has accelerated sharply since Russia’s invasion of Ukraine,” he said. “Beijing’s core strategic objective is to reduce its vulnerability to potential US sanctions under conditions of severe geopolitical stress.”
Like Kedia, Wang expects China to continue selling its holdings of US government debt. He claims that US Treasurys account for roughly 20% of China’s reserves, likely above the comfort level of its government.
Joe Mazzola, Charles Schwab
Charles Schwab’s head trading and derivatives strategist wrote that news adds to fresh “sell America” concerns after a European pension fund recently rattled markets by halting its buying.
“If China follows suit even as Japan’s growing economy attracts more assets there, the pressure on Treasuries might advance, sending yields higher and keeping borrowing costs elevated,” Mazzola wrote.
He advised investors to track demand via Treasury auctions and US macroeconomic data, which could influence expectations for Federal Reserve policy.
Jeremy Mark and Josh Lipsky, Atlantic Council
Analysts at the Atlantic Council wrote that news of the directive raises questions about its timing and intent, especially since the directive had reportedly been in place for weeks before becoming public.
They noted the news came days after Qiushi, a Chinese Communist Party journal, published a 2024 speech by Chinese leader Xi Jinping. In the speech, Xi called for the internationalization of China’s currency.
The fact that both developments emerged within a week was “too conspicuous to ignore,” particularly given ongoing market and policy dynamics in Washington and New York.
The analysts also suggested the leak may have been intended as a message to Washington — and specifically to Treasury Secretary Scott Bessent — after he publicly referenced rumors of Chinese gold-backed digital assets and linked recent volatility in gold prices to China.
“But wherever the dust settles in the near term, the longer-term trajectory seems clearer. China’s ambitions to reduce reliance on the dollar will continue, and the Chinese government will keep finding ways to make life a little more difficult for the United States — and the dollar — wherever it can,” they wrote.