China’s external-surplus recycling is moving beyond the central bank

As the US runs large deficits, markets are keeping a keen eye on demand from traditional buyers of US debt. In June, China’s reported holdings of Treasuries fell to the lowest since 2008. However, reports say some Chinese banks are increasing their Treasury purchases.

This apparent contradiction highlights a broader change in how trade surpluses are managed: as commercial banks and private firms increase overseas investment, the government’s own official reserves are becoming a less important destination for asset accumulation.

The pre-2014 central bank-led “recycling” model saw the current-account surplus and official reserves move more or less in unison. This year, there was very limited reserve accumulation. Official reserves accounted for about 68% of external financial assets in late 2011, but only 31% by early 2026.

Banks are an important part of that shift. Their external financial assets reached USD 2.1 trillion in the first quarter, including USD 633 billion in bonds. (To be sure, the dollar’s share of these assets has fallen to 46%, while yuan-denominated assets’ share has risen to 31%.)