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China cuts US Treasury holdings to lowest level since 2008
(www.scmp.com)
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this post was submitted on 10 Feb 2026
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The argument that China is still recycling its surplus because it holds dollar claims is a classic textbook view that ignores how the plumbing of global finance has been modified in 2025 and 2026. While a trade surplus technically creates a claim on foreigners, the idea that these claims must inevitably return to the US Treasury market is a fantasy from a previous decade. China is no longer content to hold paper claims that can be frozen or devalued. Instead, they are aggressively converting those financial claims into hard claims. When China uses its trade surplus to buy a lithium mine in Africa or a port in Southeast Asia, they aren't recycling credit back to the US government. Instead, they are physically removing that capital from the US financial orbit and locking it into the real economy of the Global South.
The point about net settlement also misses the shift toward a multipolar system. In early 2026, we are seeing the rise of the Unit and bilateral swap lines which allow China to settle its trade imbalances without ever needing a dollar intermediary. If China sells more to Brazil than it buys, it doesn't have to hold USD assets to settle the difference. China can simply hold a balance in a BRICS clearing account backed by gold or use that surplus to fund Brazilian infrastructure projects. The surplus is being settled in tangible, productive assets rather than in the debt of a rival power. This is a strategic decision to control the means of production rather than the means of consumption.
The claim that US domestic holders or the Fed can just buy the debt if the rest of the world walks away is technically true but economically disastrous. If the Fed has to step in as the buyer of last resort to fund a trillion dollar interest bill, it is effectively printing money to pay for past spending. This is the definition of fiscal dominance, where the central bank loses its ability to fight inflation because it is too busy keeping the government from going bankrupt. Domestic holders like pension funds and banks will only buy that debt if the interest rates are high enough to compensate them for the massive inflation risk, which creates a death spiral of rising borrowing costs and slowing economic growth.
The real adjustment isn't just that Americans will simply have fewer foreign goods. The US will lose the ability to run these massive deficits without immediate, painful consequences at home. For eighty years, the US could spend more than it earned because the rest of the world was forced to hold dollars for trade. As China and the BRICS bloc build their own settlement systems, that forced demand is evaporating. We are moving from a world where the US could export its inflation to a world where that inflation stays at home. The US is losing its financial superpower status that subsidized the American way of life since 1945.