China Just Dumped $688 Billion in US Debt. Here's Why That Should Worry You.

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Hey everyone,

I've been reading a lot about tariffs, trade wars, and all the usual US-China drama. But there's something way bigger happening underneath the headlines that most people aren't talking about.

China is selling US Treasury bonds. Fast.

Not because they need the cash. They're swimming in it from trade surpluses. They're selling at a loss—taking a 10-20% haircut on their holdings—during one of the worst bond markets in decades.

That's not desperation. That's preparation.

Let me break down what's actually happening and why I think this matters for anyone with money in the market.

According to the latest Treasury data, China's holdings of US bonds have dropped to $688 billion.

That's the lowest since 2009. Sixteen years of financial integration—gone.

At the peak in 2013, China held $1.32 trillion in US debt. They've now sold nearly half of it. And they're still selling.

Think about what that means. For decades, there was this "closed loop" where China bought our debt so we could keep spending, and we used that spending to buy Chinese goods. It was a weird financial marriage that kept both economies humming.

That marriage is over. The papers are signed. They're just waiting for the assets to clear.

This is the part that made me sit up straight.

If you're holding bonds and you don't need cash, the smart move is to wait for prices to recover. You take the coupon payments and chill. That's Investing 101.

China is doing the opposite. They're dumping bonds into a bad market and accepting billions in losses.

The catalyst? Russia.

In 2022, when Russia invaded Ukraine, the US and its allies froze $300 billion in Russian reserves basically overnight. Just like that—money Russia thought was theirs became inaccessible.

Beijing watched that and did the math. If there's ever a conflict over Taiwan or the South China Sea, their Treasury holdings wouldn't be a savings account. They'd be a hostage. Or worse—a donation to the US government.

So they're taking a 10-20% loss today to avoid a 100% loss tomorrow.

From a game theory perspective, it makes perfect sense. Scary, but logical.

Here's where it gets interesting for us.

When the world's second-largest economy dumps hundreds of billions in bonds, someone has to buy them. Otherwise, bond prices crash, interest rates spike, and the whole financial system gets messy.

So who's stepping in?

US allies.

The UK's holdings have surged to over $750 billion, making them the second-largest holder of US debt. Think about that—a country with a much smaller economy and its own budget problems is now holding more US debt than China.

Belgium—which is basically a proxy for European institutions through Euroclear—has spiked to around $350 billion.

One analyst called this "financial conscription." The G7 is being forced to absorb the debt China is dumping just to keep the system from breaking.

It's like a game of hot potato, except the potato keeps getting heavier.

This is the really important part.

China isn't keeping the cash in dollars. They're converting paper into physical stuff that can't be frozen by any government.

Gold: The People's Bank of China has been buying gold for 18 straight months. Gold doesn't care about sanctions. You can't freeze it through SWIFT.

Oil: They're filling their Strategic Petroleum Reserve to capacity—nearly 1.5 billion barrels. If there's ever a naval blockade, they've got fuel.

Metals: Despite their real estate sector imploding, China is hoarding copper, cobalt, and lithium. These are the building blocks of modern military hardware and green energy infrastructure.

Food: This one shocked me. China now holds 60-70% of global corn and wheat reserves. Enough to feed 1.4 billion people for over a year without a single import.

They're building a lifeboat while the rest of the world argues about deck chairs.

Okay, so what do we actually do with this information?

I'm not saying a war is coming. I'm not a geopolitical expert. But I am paying attention to what the people with the most information are doing with their money.

Here's the framework I'm thinking about:

1. Think Twice About Long-Term Bonds

US Treasuries used to be the "risk-free" asset. The thing you buy when everything else looks scary. But if the world's largest creditors are running for the exits, maybe that label doesn't fit anymore.

Short-term T-bills (1-6 months) still make sense for parking cash. But those 20-year bonds? The math gets dicey if foreign demand keeps falling and the Fed has to step in.

2. Hard Assets Deserve Attention

If China is converting paper into gold, oil, and metals, there might be something to that strategy. I'm not saying go full doomsday prepper. But having some exposure to commodities or the companies that produce them doesn't seem crazy.

Energy stocks, mining companies, even gold ETFs—these are the things that hold value when currencies get weird.

3. Watch the Allies

This is my canary in the coal mine. If the UK or Japan start struggling to absorb all this debt, or if their currencies start cracking under the pressure, that's when things could get really volatile.

The Federal Reserve would probably step in and print money to buy the bonds no one else wants. That's inflationary. And inflation hurts everyone, but especially people our age who are just starting to build wealth.

I keep thinking about this analogy I read:

Imagine the global financial system as a massive ship. US Treasuries are the ballast keeping it stable. China used to be the biggest weight in that ballast. Now they're throwing their portion overboard while the ship is in stormy waters.

To keep the ship from tipping, smaller allies are being forced to lean over the edge and hold it down.

Meanwhile, China is using what they stripped from the ballast to build themselves a motorboat—one made of gold, oil, food, and metals—so they can survive if the big ship goes under.

Will the ship actually sink? I don't know. Nobody does.

But I'd rather understand what's happening than be surprised by it.

See you tomorrow.

— Alex

Not financial advice. Just what I'm learning and thinking about.