China's holdings of US Treasuries fell to $618 billion in July, the lowest level since August 2008, reflecting a strategic shift in Beijing's reserve management. At its peak in November 2013, China held over $1.3 trillion in US sovereign debt. This 18-year low underscores a widening divergence between the world's two largest economies, with the US facing fiscal deficits and inflation, while China battles slowing growth and deflationary pressures.

Analysts note China is diversifying into gold, agency bonds, and equities, especially with the AI boom. This divestment accelerated after the US froze Russia's overseas reserves following Moscow's 2022 invasion of Ukraine, as Beijing feared similar measures. Some of the decline reflects market moves, with foreign investors buying more US equities than government bonds.

Deutsche Bank analysis shows international flows into US stocks reached 2.8% of US GDP, overtaking Treasuries at 2%. Alicia García Herrero of Natixis stated China's move signals the US they can dump Treasuries, as global investors grow concerned about US debt levels surpassing $40 trillion. Rising Japanese bond yields are tempting Japanese investors back to the domestic market, potentially pushing US yields higher.

Despite the sell-off, China remains the third-largest holder behind Japan and the UK.