China’s financial mandarins have in the past 24 hours seemingly instructed major banks to continue to trim their holdings of US Treasury bonds.

The move, flagged here at Bne IntelliNews on February 3, but only widely covered in global markets this week, has propelled the yuan to a multi-year high and ignited fresh speculation around the world about Beijing’s true intentions toward US debt, and in particular the dollar’s once dominant role in international finance.

On the surface at least, the directive appears technocratic and comes in the form of a risk-management exercise aimed at providing insulation for leading Chinese banks from the vagaries of the Treasury market.

But even as sources across the Taiwan Strait in Taipei claim that online posts claiming China is immediately dumping huge volumes of Treasuries - or perhaps is forcing banks to sell and buy silver - are overstated at best, there have been no formal statements to the contrary released by Chinese authorities.

The backdrop to this latest development in China's sell-off of T-bonds is anything but routine though. For years, China’s holdings of US Treasuries have been on a downward spiral from their 2013 peak of around $1.3 trillion. This is a trend highlighted by December data showing Chinese holdings of T-bonds are now at their lowest level in almost 20 years.

Because of this the unspoken subtext is palpable: Beijing appears – as we said – set on reducing its reliance on the US financial system, in part at least to help accelerate the shift toward more yuan-based alternatives and a more diversified foreign-exchange reserve regime around the world.

Will this lead to a mass sell-off and 'dumping' of US T-bonds though? 

Sceptics – primarily on US financial news shows – are already scoffing at the notion that this is effectively a deliberate effort to weaponise reserve assets. Barron’s captured the mood in US markets when it led with a piece titled “China May Be Moving Away From US Treasuries. Why the Market Shrugged It Off.”

Meanwhile, Yahoo Finance TV as well as CNBC and Bloomberg segments all featured US Treasury officials essentially dismissing the idea that China would dare to weaponise the nation’s Treasuries,

Later, a Reuters report quoted US Treasury Secretary Scott Bessent as saying “If Treasuries hit a certain level or if the Federal Reserve believed that a foreign - I won’t call them an adversary - but a foreign rival were weaponising the US government bond market or attempting to destabilise it for political gain, I am sure that we would do something in conjunction with each other, but we just haven’t seen that.” 

Bessent is the same Treasury Secretary who at Davos in January, told Fox Business that "India started buying Russian oil after the (Ukraine) conflict began… but President Trump put a 25% tariff on them, and India has geared down and has stopped buying Russian oil." As of February 11, Russia continues to sell oil to India.

Experts stateside have long claimed that China’s Treasury holdings - currently around $682bn as of January - are unlikely on their own to destabilise US bond markets even if sold en-masse as is looking distinctly possible. Nonetheless, the symbolism of Beijing discouraging its banks from buying the world’s longtime benchmark risk-free asset should be taken seriously.

For China’s policymakers, the Treasury market is a double-edged sword. Historically, US government bonds have served as a cornerstone of China’s vast foreign reserves, providing liquidity and a reliable counterweight to the yuan. However, that same exposure, by extension, also means that Beijing has a ‘dog in the fight’ with a vested interest in the stability of US fiscal and monetary settings. This itself is a position now at odds with the geopolitical landscape put in place by recent tariff threats and counter threats exchanged by Beijing and Washington.

The official language China is likely to come up with of “diversifying risk” and avoiding “concentration” if an when a statement is made, is plausible, but scarcely paints the full picture. Beijing’s broader agenda, as was covered by Bne IntelliNews at the start of the month, seems to encompass the ongoing and gradual decoupling from all dollar-centric finance settings, thereby reducing the leverage that US monetary policy exerts over China and Chinese markets.

In knock-on effect, with Chinese banks being weaned off US Treasuries by official command or at their own behest, it only follows that over the longer-term, said banks’ appetite for accumulating them in the future will wane over time.

As such, whatever US speaking-heads on TV financial segments and Scott Bessent have to say, Beijing’s calculated signals have already had an effect: the yuan has strengthened to its highest levels in more than two years against the dollar. This is not a coincidence.

Authorities in Beijing have been quietly promoting the yuan’s international use for several years, both by expanding bilateral trade settlements in the currency and also by deepening offshore yuan bond markets: moves that are helping to underpin long-term ambitions to further internationalise China’s currency.

At the same time, Chinese reserve managers have been increasing the nation’s gold holdings and other non-dollar assets The subsequent selling of US bonds, whether by state banks under orders or even state-linked institutional investors therefore, only adds to the ‘diversification narrative’.

For Beijing, for now at least, the attraction of less exposure to dollar risk may outweigh the costs of holding large quantities of US government paper whose value is increasingly tethered to a time of turbulent American fiscal politics. Thereby mitigating this risk, which, in a geopolitical crisis or financial conflict with the US may prove decisive, Beijing is loosening the tethers it once had to a liability whose terms and value it cannot control.