In its regular report on international capital flows, the U.S. Treasury Department revealed data for July 2025 that immediately drew global attention to China.
One figure stood out, creating tension in Washington: China offloaded $25.7 billion worth of U.S. Treasuries in July alone — about 180 billion RMB. Yes, you read that right, this was a single month’s move.
This reduction brought China’s total U.S. Treasury holdings down to $730.7 billion, the lowest level since 2009.
China’s sell-off is not a sudden impulse. A timeline reveals that this trend has been ongoing for years. Since 2022, China has consistently reduced its U.S. debt holdings, shedding more than $280 billion in just three years. Yet, July marked the sharpest monthly reduction of 2025 so far — a move loaded with strategic signals.
Interestingly, while China was in “sell, sell, sell” mode, two of America’s other largest creditors — Japan and the U.K. — were in “buy, buy, buy” mode. The contrast underscores the calculated nature of China’s actions.
At the same time, another set of numbers surfaced. The People’s Bank of China reported that official gold reserves had risen for the tenth consecutive month, reaching 74.02 million ounces.
On one side, China is reducing U.S. debt holdings; on the other, it is building up gold reserves. The strategy is clear: diversify foreign exchange reserves, reduce reliance on dollar-denominated assets, and strengthen the “ballast” of hard currency.
In simple terms, it’s about putting multiple layers of insurance on China’s financial security.
Trump’s “Bad Feeling” and the Sudden Visitors
This $25.7 billion “bill” likely rattled Donald Trump. The domestic financial picture he faces is already precarious.
U.S. federal debt surpassed $37 trillion in September, and the annual interest payment alone is projected to exceed $1.1 trillion, nearly equal to the annual defense budget. The U.S. government’s finances look like a tightrope act, on the verge of collapse.
Meanwhile, Democrats and Republicans in Congress remain locked in fierce battles over the new fiscal year’s budget, with the threat of a government shutdown looming.
Amid this chaos, China’s accelerated sell-off of U.S. Treasuries sent an unmistakable message. The move means America will face higher borrowing costs and greater difficulty rolling over old debt with new debt. If market confidence wavers, others may follow China’s lead in selling, pushing the U.S. debt snowball closer to the cliff’s edge.
Trump realized that China’s financial card in this game carries far more weight than he had anticipated.
Just days after the sell-off news spread, on September 21, a bipartisan U.S. congressional delegation hurriedly landed in Beijing. This was the first such cross-party visit from the House of Representatives since 2019.
Officially, the trip was about “enhancing communication and avoiding miscalculation,” but the timing was telling. It looked less like routine dialogue and more like a fact-finding mission: to gauge China’s intentions on U.S. debt and assess how far Beijing might go.
The delegation included members from key military and foreign affairs committees, signaling that Washington viewed the issue as more than just financial — they were trying to decode the strategic intent behind China’s financial maneuvers.
A “Boiling Frog” Contest
The fact that Washington felt the need to send a delegation speaks volumes about its unease. The U.S. hoped that face-to-face talks might persuade China to ease the pace of its sell-off.
But Beijing’s stance has been consistent and public: adjusting asset allocations is a normal sovereign decision based on market considerations, aimed at ensuring the safety and value of reserves. The message was firm yet unassailable, leaving the U.S. with little leverage.
After all, America’s finances are in disarray: the debt ceiling keeps rising, and shutdown crises recur regularly. For China, one of the largest creditors, trimming U.S. debt holdings as a risk management step is perfectly logical.
For decades, the U.S. wielded dollar hegemony, often using financial sanctions as a weapon. But now, as others respond with market-driven countermeasures, it is Washington that seems caught off guard.
The Trump administration knows well: if China keeps up this pace, the impact on the U.S. Treasury market will be structural. It threatens not only government financing but also global confidence in dollar assets.
The delegation has returned, but Washington’s problems remain unsolved. Trump faces a dilemma: on one hand, he needs creditor nations’ support to stabilize financial markets; on the other, he resists making real concessions on trade, technology, and other fronts.
This “wanting it both ways” mindset is untenable in today’s great-power competition.
China’s actions speak clearly: cooperation is possible, but only on the basis of mutual respect and reciprocity. The U.S. cannot push for “decoupling” in technology while expecting China to underwrite its financial stability.
The Larger Lesson
This U.S. debt episode is a wake-up call. The global financial system is undergoing profound change. The era when one country could print money and have the whole world foot the bill is facing mounting challenges.
For China, advancing RMB internationalization and diversifying reserves is a necessity for financial security. This process won’t be derailed by a few rounds of dialogue.
For the U.S., the real solution lies in confronting structural problems: instead of globe-trotting to persuade others to bankroll its deficits, Washington must cut spending, balance its budget, and rebuild long-term confidence in the dollar.
At the end of the day, credibility is not granted by others — it is earned.
And as the ripple effects of China’s $25.7 billion sell-off continue, one thing is clear: without genuine policy shifts, sending more delegations to Beijing will only result in more empty-handed returns.
