For many years, experts, politicians, and financial analysts warned that if China ever started selling off its massive stockpile of U.S. Treasury bonds, the United States could face a serious economic disaster. They said it would lead to rising interest rates, a falling dollar, and a crisis in the bond market that could send shockwaves through the global economy.
That scenario is no longer theoretical. China is now selling U.S. Treasuries. Its holdings have dropped to the lowest level since 2009. Yet the U.S. financial system is still standing. In fact, the Treasury market hit a record for foreign investment just as China was cutting its position. The doomsday warnings have not come true, and a growing number of economists are now saying those earlier fears were based more on theory than reality.
The past warnings and the logic behind them
For years, China was the second-largest foreign holder of U.S. Treasuries. Some believed this gave Beijing powerful leverage. If China sold off a large amount of its holdings, it could push down bond prices, drive up interest rates in the U.S., and weaken the American economy.
This idea was often described as a “nuclear option” in financial circles. It was part of a larger theory called “mutually assured financial destruction,” where the U.S. and China were seen as being tied together in a dangerous economic relationship. If either side made a drastic move, both would suffer.
In 2011, China held around 14 percent of all U.S. Treasury debt. That large share helped fuel the belief that China could disrupt the bond market if it wanted to.
The fear grew stronger during the trade battles between the U.S. and China in the late 2010s and early 2020s. In those years, some warned that China might retaliate against American tariffs by dumping Treasuries on the open market.
But while the idea was dramatic, many of the assumptions behind it were flawed.
The reality today and why the fears were wrong
As of early 2025, China is no longer the second-largest holder of U.S. Treasuries. According to data released by the U.S. Treasury Department in May 2025, China’s holdings fell to $765.4 billion in March. That was a drop of $18.9 billion from the previous month. It was also the lowest level since 2009.
The South China Morning Post reported that China’s holdings had declined even as total foreign investment in U.S. Treasuries reached a record high of $9.05 trillion in March. That marked the third straight month of increases in overall foreign holdings.
In that same period, the United Kingdom increased its holdings to $779.3 billion, overtaking China and becoming the second-largest foreign holder after Japan.
This shift shows that China’s role in the U.S. bond market is shrinking. As Reuters noted in a 2024 report, China’s share of U.S. Treasuries had dropped from 14 percent in 2011 to just around 3 percent in 2024. Reuters wrote, “China’s capacity to cause chaos by selling bonds has diluted considerably.”
In fact, some of the very institutions that were once worried about China’s influence are now saying those concerns are outdated. A Deutsche Bank strategist told Reuters, “Beijing has not shown any desire to be a disruptive force.”
U.S. Treasury Secretary Scott Bessent gave similar reassurances in an April 2025 interview. When asked if China might try to use its Treasury holdings as a weapon in the ongoing trade war, Bessent replied, “There is no risk of China inflicting economic pain on us through a bond dump.”
He explained that if China sold a large number of Treasuries, it would need to buy back yuan with the money. That would increase the value of China’s currency, the yuan, and make Chinese exports more expensive. “That is the opposite of what China wants,” Bessent said.
He also pointed out that the Federal Reserve has tools to stabilize the market if needed. “We have a big tool kit,” he said. “And we just haven’t seen anything that suggests China wants to do this.”
A Reuters opinion piece published in April 2025 put it even more clearly. It said that the long-feared collapse was a “notion based more in myth than reality.” It noted that even in the middle of trade tensions and rising bond yields, there was “no financial doomsday.”
Why the market has absorbed China’s sales
One of the main reasons the U.S. bond market has remained stable is because other buyers have stepped in. Foreign private investors, including banks and investment funds, now hold a record $6.8 trillion in Treasuries. The U.K. and Japan have also increased their purchases.
Reuters reported in 2024 that total foreign holdings of Treasuries continued to rise, even as central banks like China’s reduced their stakes. The total size of the Treasury market has also grown dramatically, from under $6 trillion in 2008 to over $26 trillion in 2025. This makes China’s share much smaller than it once was.
Another reason China’s selling has not caused chaos is because it has been gradual and measured. Analysts say China has been letting bonds mature rather than dumping them all at once. This slow reduction allows the market to adjust without causing panic.
In its May 2025 article, the South China Morning Post said there was “no sign China has leveraged its massive stockpile of American government debt as a bargaining chip.” Instead, China is believed to be diversifying its foreign exchange reserves, moving some money into other investments like U.S. agency bonds.
Reuters confirmed this trend in a 2023 article, noting that “China rotated into other U.S. dollar assets.” The article explained that while China was cutting back on Treasuries, it was increasing its holdings of U.S. agency bonds, which are also considered safe investments.
Even during a period of volatility in April 2025, when Treasury yields rose sharply following President Trump’s new tariffs, the market quickly recovered. A 90-day pause on most of the tariffs helped settle investor nerves. Treasury yields remained elevated but did not spike out of control.
In other words, the system worked. The bond market absorbed the shock, and there was no lasting damage.
Why China would hurt itself by dumping Treasuries
Experts also agree that it would not make sense for China to sell off Treasuries in a dramatic fashion. Doing so would hurt China more than it would hurt the United States.
If China tried to sell hundreds of billions of dollars in bonds quickly, it would cause the value of those bonds to drop, which would reduce the value of China’s own holdings. At the same time, the value of the yuan would rise, making Chinese exports more expensive in global markets. That would hurt China’s economy, which still depends heavily on exports for growth.
Reuters explained that such a move would be “shooting itself in the foot.” The article added that even if China tried to do this, the Federal Reserve could step in with large-scale bond purchases to stabilize prices.
That is why most experts now believe that China is acting in its own best interest by reducing its holdings gradually and carefully, not through a sudden fire sale.
For more than a decade, there have been loud warnings that China selling U.S. Treasuries could lead to economic disaster in the United States. But those warnings have not come true.
China is selling, but the bond market is stable. Other investors are picking up the slack. Treasury yields are under control. The U.S. dollar remains strong. And there is no sign of financial collapse.
As one Reuters article put it, “The feared ‘nuclear option’ has turned out to be a dud.” The idea that China could bring down the U.S. economy by dumping Treasuries was always more theory than fact. Now we have the real-world proof.
