A desire by Beijing to avoid "the risk of possible conflict" with Washington could have contributed to China cutting its holding of US government debt to below US$1 trillion for the first time in over 12 years, analysts said.
China's holdings of US Treasuries fell from US$1.003 trillion in April to US$980.8 billion in May, according to the US Department of the Treasury, representing the lowest point since May 2010 when its holdings stood at US$843.7 billion.
The US is dealing with its highest level of inflation in 40 years, while strained bilateral ties between China and the US over trade, technology and Russia have also contributed to the concerns.
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Hong Kong also slashed its holdings from US$195.4 billion in May to US$186.6 billion last month.
"It's essentially a matter of China-US relations," said Tan Yaling, head of the Beijing-based China Forex Investment Research Institute.
"The large holdings in the past were due to the good bilateral ties, but now China needs to avoid the risk of a possible conflict with the United States."
The reduction for the sixth straight month came at a time when Chinese academics and policy circles have held heated discussions over de-dollarisation amid the US strategic rivalry, including technological containment and the threat of decoupling.
Former central bank adviser Yu Yongding told a forum in Beijing in May that China should adjust its overseas asset portfolio, explicitly calling for cuts in holdings of US Treasuries, citing low return and increasing worries over their safety.
Beijing has long been diversifying its foreign exchange assets, with the proportion of US dollar assets dropping from around 70 per cent in 1995 to 58 per cent in 2015, according to data from the State Administration of Foreign Exchange.
China's current holding of US Treasuries represents around a 25 per cent retreat from its peak of US$1.32 trillion in November 2013 and a 10.4 per cent fall since Joe Biden took over as US president in January 2021.
US Treasuries now account for 31.4 per cent of China's US$3.07 trillion foreign exchange reserves, representing the lowest share since the global financial crisis in 2008.
China, according to Tan, could shift its attention to gold, projects under its Belt and Road Initiative and preparation for domestic risks amid the rising risks of a global recession.