China may be quietly stashing billions of dollars in US government debt at Canadian banks, giving the appearance that Beijing is reducing its financial ties to America even as it continues to help bankroll Washington’s massive deficits, according to Wall Street analysts.
The theory centers on US Treasury data showing that Canada’s reported holdings of American government debt and federally backed mortgage bonds have soared to nearly $600 billion — more than four times their level five years ago, Bloomberg reported.
Meanwhile, China’s reported holdings of US Treasuries have fallen by roughly half since 2016, to $618 billion.
The discrepancy has fueled suspicions that China’s apparent retreat from US debt may reflect a change in where its investments are held rather than a massive selloff.
That’s because US Treasury data can show which country holds a bond without necessarily revealing who actually owns it.
China has long been one of America’s biggest foreign creditors, investing dollars generated by its massive export industry in US government bonds.
If China transfers its investments to a Canadian bank that holds the securities on its behalf, the holdings could show up in US government records as Canadian rather than Chinese.
On paper, China’s investments in America would appear to be shrinking, even though Beijing hadn’t necessarily sold anything.
“The story here is that China has been much better at hiding its dollars than it’s been about getting out of the dollar,” Brad Setser, a former US Treasury official who tracks international capital flows, told Bloomberg.
One unusual pattern involves mortgage-backed securities — investments tied to US home loans and backed by federal housing agencies.
US Treasury figures show that Canada’s reported holdings of those securities have surged to about $162 billion, up from roughly $21 billion in mid-2021, according to Bloomberg.
China’s reported holdings of similar mortgage bonds, by contrast, have fallen nearly 50% since the beginning of 2024.
Vitaliy Liberman, a mortgage-debt specialist at DoubleLine, told Bloomberg that Wall Street contacts he consulted pointed to China as the possible explanation for Canada’s surging holdings.
A dozen mortgage investors and strategists also said they were unaware of Canadian investors buying US mortgage-backed securities on such a massive scale.
The suspected arrangement could help Beijing appear less dependent on the US dollar while allowing it to retain investments that would be difficult to replace.
China’s trade surplus exceeds $1 trillion, leaving it with enormous amounts of dollars to invest.
Dumping US bonds could drive down the value of its remaining holdings, while converting dollars into yuan could strengthen the Chinese currency and make its exports more expensive.
Still, there is no direct evidence linking China to Canada’s buying spree. Some analysts believe Canadian hedge funds could explain at least part of the increase.
“I’m not quite comfortable saying clearly this is all China,” Alex Etra, a senior macro strategist at Vanda Research, told Bloomberg.
China’s foreign-exchange regulator declined to comment to Bloomberg, while Canada’s banking regulator said it does not discuss client activity.
The Post has sought comment from the Treasury Department as well as the Chinese and Canadian governments.