China’s gradual retreat from US Treasury markets in the past year has accelerated significantly of late, with analysts pointing to a sharper shift in strategy following the February 28 outbreak of hostilities with Iran across the Middle East. The pattern, while thus far largely incremental rather than disorderly, highlights Beijing’s broader effort to reduce exposure to the US financial system as it expands the role of the yuan in worldwide cross-border settlements.

According to US Treasury data cited by Global Times, the holdings of US government debt by the People's Republic of China (PRC) slipped to an estimated $693.3bn in February, a marginal monthly decline but part of a longer downward trend in reserves allocation, the paper reports. And while still the third-largest foreign holder of US Treasuries, China’s position has now weakened noticeably relative to Japan and the UK: according to the latest US Treasury International Capital (TIC) data for early 2026, the top two foreign holders of US Treasury securities coming in at $1.2 trillion for Tokyo and $897bn for London.

The more notable development, however, has been the acceleration in selling pressure after late February, when geopolitical tensions intensified over war in Iran and renewed fears over a broader US-Iran-China entanglement came to the fore.

According to our own sources, at the same time China’s Treasury holdings fell nearer to $633bn in early 2026, with the escalation in the Middle East now acting as a trigger point for faster portfolio adjustment at the same time Sino-US and Sino-Japan tensions continue to increase.

Beijing has of course previously reduced exposure to US debt during earlier flashpoints, including the US - China trade war and sanctions imposed on Russia, but the current sell-off appears more sustained and likely to run for longer.

At the same time, even with evidence mounting to back the sell-off, Reuters has reported that US Treasury Secretary Scott Bessent has continued to dismiss concerns that China could one day “weaponise” its holdings of US debt. Coming at the same time that Washington steps up sanctions enforcement in parallel theatres including Iran, and most recently against Chinese teapot refineries for buying oil from Tehran, the Treasury’s argument centres on large-scale liquidation as being self-defeating for the PRC, given potential losses on China’s remaining dollar assets and possible upward pressure on the yuan.

At present though, Beijing’s strategy appears less focused on any abrupt divestment than on steady diversification, and data from US authorities backs this, showing that China’s overall exposure to US Treasuries has fallen by roughly 10–15% over the past year according to analysis compiled by Anadolu Agency.

Alongside outright sales too, China is also reshaping the structure of its external financial footprint in the expansion of yuan-based settlement across Asia and a number of select emerging markets. To this end, Beijing has steadily increased the use of swap lines, bilateral trade agreements and the Cross-Border Interbank Payment System (CIPS) in a bid to reduce reliance on dollar clearing channels. It is a shift most noticeable in energy and commodity trade, particularly with sanctioned or sanction-sensitive counterparties where yuan invoicing has expanded exponentially as a practical alternative to dollar settlement.

This shift is reinforced further by a broader diversification of reserves, including sustained gold purchases by the People’s Bank of China coupled to increased holdings in non-US sovereign debt.

Linked to this according to US Treasury data, is the overall foreign ownership of US Treasuries continuing to rise, but China’s share declining in both absolute and relative terms.

For now, economists remain largely divided over the significance of this trend with some arguing that China’s reductions are primarily defensive and designed to manage interest rate risks at home while avoiding overexposure to US financial sanctions. Others see a more explicit logic, in which financial decoupling mirrors broader geopolitical fragmentation. That China is increasing its share in non-US sovereign debt at the same time many countries are purchasing Treasuries is classic China, with Beijing now starting to don the puppetmaster’s gloves.

As such what is clear even from the outside is that the post-February 28 Chinese sell-off of Treasuries has seen a perceptible shift in pace. While China is not exiting US debt markets altogether, the marginal direction of travel is now firmly downward. However, that this has coincided with a period of heightened geopolitical stress in the Middle East and renewed questions over the durability of dollar-centric financial systems is indicative that China is once again playing the long game.