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China Decode: Why China Keeps Selling U.S. Treasuries

34 min episode · 2 min read
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Episode

34 min

Read time

2 min

Topics

Investing, Fundraising & VC, Leadership

AI-Generated Summary

Key Takeaways

  • Russia-China energy dependency: Russia's trade with China doubled from 2020 to 2024, with China absorbing 20% of Russia's crude oil exports. China now holds leverage over pipeline pricing, reportedly demanding rates 50% below Russia's asking price, because Europe's post-Ukraine war hydrocarbon cuts left Russia with few alternative large-scale buyers for its natural gas.
  • U.S. Treasury vulnerability: China holds roughly 50% of its $3 trillion in FX reserves in U.S. bonds, but has been diversifying into gold and commodities since 2022 FX sanctions on Russia signaled dollar-denominated assets carry geopolitical risk. Central banks globally now hold more gold than U.S. treasuries for the first time since the 1990s.
  • Shadow Treasury holdings distort data: Analysts including Brad Setzer argue China purchases significant U.S. Treasury bonds through custodial intermediaries in Belgium, Canada, and the Cayman Islands, meaning publicly reported Chinese sell-down figures likely understate actual holdings. Investors tracking China's true dollar exposure should monitor these third-party custodial flows, not just official PBOC reserve data.
  • CNY appreciation signals regime shift: China is allowing the renminbi to gradually appreciate against the dollar, reversing its historical strategy of building FX reserves to devalue the currency and boost export competitiveness. This shift is partly geopolitical — reducing trade surplus criticism from the U.S. and Europe — and partly structural, as FX reserve manipulation has stabilized.
  • China's neurotech commercial lead: Shanghai-based NeuroCall received the world's first commercial approval for a brain-computer interface in March, ahead of Neuralink, which remains in U.S. clinical trials with 21 participants after FDA rejection in 2022. China has backed the sector with a $1.7 billion industry fund and a 17-step government roadmap targeting global leadership by 2030.

What It Covers

China Decode examines three converging developments: the stalled $34 billion Power of Siberia 2 pipeline between Russia and China, China's ongoing sell-off of U.S. Treasury holdings as 30-year yields hit 5.2%, and China's commercial approval of the world's first brain-computer interface chip for spinal cord injury patients.

Key Questions Answered

  • Russia-China energy dependency: Russia's trade with China doubled from 2020 to 2024, with China absorbing 20% of Russia's crude oil exports. China now holds leverage over pipeline pricing, reportedly demanding rates 50% below Russia's asking price, because Europe's post-Ukraine war hydrocarbon cuts left Russia with few alternative large-scale buyers for its natural gas.
  • U.S. Treasury vulnerability: China holds roughly 50% of its $3 trillion in FX reserves in U.S. bonds, but has been diversifying into gold and commodities since 2022 FX sanctions on Russia signaled dollar-denominated assets carry geopolitical risk. Central banks globally now hold more gold than U.S. treasuries for the first time since the 1990s.
  • Shadow Treasury holdings distort data: Analysts including Brad Setzer argue China purchases significant U.S. Treasury bonds through custodial intermediaries in Belgium, Canada, and the Cayman Islands, meaning publicly reported Chinese sell-down figures likely understate actual holdings. Investors tracking China's true dollar exposure should monitor these third-party custodial flows, not just official PBOC reserve data.
  • CNY appreciation signals regime shift: China is allowing the renminbi to gradually appreciate against the dollar, reversing its historical strategy of building FX reserves to devalue the currency and boost export competitiveness. This shift is partly geopolitical — reducing trade surplus criticism from the U.S. and Europe — and partly structural, as FX reserve manipulation has stabilized.
  • China's neurotech commercial lead: Shanghai-based NeuroCall received the world's first commercial approval for a brain-computer interface in March, ahead of Neuralink, which remains in U.S. clinical trials with 21 participants after FDA rejection in 2022. China has backed the sector with a $1.7 billion industry fund and a 17-step government roadmap targeting global leadership by 2030.

Notable Moment

A hot-mic exchange between Xi Jinping and Vladimir Putin during a Beijing visit, in which both leaders casually discussed humans potentially living to 150 years old, aligns directly with active Chinese longevity research programs currently underway in Shenzhen — suggesting the conversation reflected real policy priorities, not idle speculation.

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Episode Transcript

Support for the show comes from The Guardian and their new show, Stateside, where journalist Kai Wright and Carter Sherman use the entire independent reporting resources of The Guardian to slow down the news and wrestle with the questions we all have about what is actually happening in the world. Join Kai and Carter three times a week as they utilize all the reporting resources The Guardian has across news, international coverage, climate, culture, wellness, and more. And The Guardian is not owned by a billionaire. They fearlessly report the facts without interference. Go to theguardian.com/stateside to learn more, and listen wherever you get your podcasts or watch on YouTube. That's the guardian.com/stateside. I just think that it's super interesting at a macro level that these two countries, because of trade and strategic alignment, have come closer and closer, and it's it's sort of Kissinger's nightmare. Right? We're living in a kind of reverse nineteen seventies where Russia and China getting closer together rather than The US getting closer to both Russia and China individually. Welcome to China Decode. I'm Alice Anne. And I'm James King. In today's episode of China Decode, we're discussing the future of a gas pipeline between Russia and China, China's massive sell off of US treasuries, and the world's first commercially approved brain chip. Alright. Let's get right into it. Russian leader Vladimir Putin visited China just days after president Trump left his own bilateral summit in the country. A centerpiece of the agenda was the long stalled power of Siberia two pipeline, a proposed 1,615 mile pipeline that would carry up to 40,000,000,000 cubic meters of natural gas annually from Russia into the industrial heartlands of China. So far, no deal has been announced post summit, but a spokesperson says a general understanding between the two leaders was reached. James, this obviously happened right after Trump's own trip, to China. We knew this from the get go. Obviously, the two leaders, Putin and Xi, have a very strong relationship that dates back decades. This is Putin's twenty fifth visit, which is hard to believe, to the country. No other, leader at the world stage has met with Xi Jinping as many times as Putin and vice versa. What was your readout on the meeting between these two leaders? And why, more importantly, has this gas pipeline, which should be strategic to both sides, importantly has this gas pipeline, which should be strategic to both sides, been stalling? Yeah. I'll come to the gas pipeline in a minute. It's a it's a monster. It's a huge deal. But I think, you know, the big picture here is that what we're seeing is the access of authoritarianism in action. This kind of bromance between Putin and Xi is really striking. And I've been looking at the fact that since Russia's invasion of Ukraine, we've seen these two big powers draw together much, much more closely. That includes diplomatically, economically, but also militarily, and that's why it …

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  • Shanghai-based NeuroCall received the world's first commercial approval for a brain-computer interface in March, ahead of Neuralink, which remains in U.S. clinical trials.
  • Shanghai-based NeuroCall received the world's first commercial approval for a brain-computer interface in March, ahead of Neuralink, which remains in U.S. clinical trials with 21 participants after FDA rejection in 2022.

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