DS Investment: "China's U.S. Treasury Sell-Off? Limited Impact and Capacity"

According to an analysis by domestic securities firms, even if China sells U.S. Treasury bonds, the impact would not be as significant as in the past, and China's capacity to sell is limited due to potential economic side effects at home.

Woo Jiyeon, a researcher at DS Investment & Securities, stated in a report titled "China's U.S. Treasury Sell-Off Card: Is It Effective?" on April 22, "The controversy over the possibility of China selling U.S. Treasuries, which is often cited as a powerful countermeasure against the U.S., is an over-interpretation by the market."

This draws a line against market concerns that, as the second-largest holder of U.S. Treasuries after Japan, China could weaponize its holdings and trigger a large-scale sell-off in response to U.S.-China tensions. Such a move, the market fears, could lead to a drop in the price of remaining Treasuries (a rise in Treasury yields), increased fiscal losses for the U.S., and impact the dollar, inflation, and market interest rates.

First, Woo noted that the trend of China's authorities selling U.S. Treasuries has already persisted for about a decade, with the pace accelerating over the past three years. "The authorities' strategy to diversify foreign exchange reserves, interventions in the foreign exchange market, and the strengthening of U.S. financial sanctions have all accelerated this trend," Woo said. "As a result, China's share of U.S. Treasuries has significantly decreased compared to before."

Because of this, Woo assessed that China's sales of U.S. Treasuries no longer have as much impact as they did in the past. China's official share of U.S. Treasuries fell from 26% at the end of 2020 to 20% as of February 2025. "This indicates that the influence of other countries over U.S. Treasuries has increased," Woo explained. In detail, among advanced economies, the holdings of the United Kingdom and Canada have expanded, while among emerging economies, India and Taiwan have increased their shares. Woo added, "Even if China sells U.S. Treasuries, if there is a similar scale of buying from other countries, the shock can be mitigated. This is also why the U.S. government has recently been encouraging other countries to purchase Treasuries."

Furthermore, there is analysis suggesting that if China weaponizes its U.S. Treasury holdings, the adverse economic effects at home could outweigh any practical benefits. Woo cautioned, "In particular, there could be renewed pressure on economic slowdown due to weakened export competitiveness and the peaking out of the inventory cycle." This could ultimately lead to a slowdown in corporate profits and reduced consumer spending power in China. Previously, when U.S. Treasury prices plunged and speculation arose that China was behind the move, U.S. Treasury Secretary Janet Yellen dismissed the idea, saying, "Selling (Treasuries) is not in China's best economic interest." This context aligns with Woo's analysis.

Woo also pointed out that if the "policonomy" trend (where politics takes precedence over economics) strengthens, China will find it difficult to achieve results in both its traditional growth driver (net exports) and this year's top priority (consumption), further limiting its capacity to sell U.S. Treasuries.

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