 China’s Strategic Shift: Turning Dollars into Gold The global financial landscape is changing rapidly. One of the most significant trends is China’s ongoing reduction of its US Treasury holdings. Latest data reveals China’s Treasury assets have fallen to $730.7 billion July 2025, the lowest level since 2008 and a fall of nearly $570 billion from an historic peak of $1.3 trillion. This gradual yet decisive move signals more than just a portfolio adjustment; it reflects deep strategic thinking re economics, geopolitics, and long-term national priorities. What is driving this dramatic shift? First, rising geopolitical tensions have heightened concerns over the weaponisation of the US dollar. China, like many emerging economies, is seeking to guard its reserves against potential disruptions. Russia was a warning to all. In addition, slower post-COVID economic growth and evolving trade barriers are making dollar-denominated assets less attractive for Chinese policymakers. China’s diversification strategy is robust and multidimensional. Gold is the headline. China’s official gold reserves have soared, with central bank purchases continuing for more than ten consecutive months and stockpiles now exceeding 74 million troy ounces (2,302 tonnes), worth some $250 billion dollars. This surge makes China one of the world’s leading state buyers. Gold now accounts for roughly 7% of total foreign exchange reserves. That’s not all. China is reallocating towards European investment-grade bonds, driven by the depth and liquidity of European markets. There’s speculation that increased holdings of euros, British pounds, and Swiss francs are supporting both reserve growth and new trade patterns with Europe. In parallel, to reduce reliance on the US dollar in global commerce, China is investing in the internationalization of the yuan (RMB), leveraging cross-border payment systems and exploring digital currency solutions. Even digital assets are on the radar, with Bitcoin gaining traction among Chinese institutions and investors seeking uncorrelated alternatives for risk management and capital preservation. This transformation highlights the urgent need for organizations to revisit risk management and asset allocation frameworks. The “safe haven” status of US Treasuries is not immutable. China’s moves suggest that return, liquidity, strategic autonomy, and geopolitical foresight must all be weighed in reserve management. For global investors, central banks, and policymakers, these shifts are a powerful reminder that today’s reserve currencies and asset classes may not hold their primacy tomorrow. Diversification, including allocations to gold, major non-dollar currencies, and new payment systems, is not just prudent but necessary in an age of rapid geopolitical and macroeconomic change. The world’s second-largest economy is rebalancing its portfolio for the future. Will others follow suit as uncertainty and innovation define the global financial order? Update : China reduced its US Treasury holdings in October 2025 to its lowest level in 17 years, as mounting concerns over US debt sustainability and the Federal Reserve’s independence further eroded confidence in dollar-backed Assets. The country’s stockpile fell to US$688.7 billion in October, down from US$700.5 billion in September, according to US Treasury Department data released on Thursday. SCMP
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 The Federal Reserve lowered interest rates for the first time since December to support America’s faltering labor market. However, the economy’s path forward looks murky, according to the central bank’s leader.
The Fed cut its benchmark lending rate by a quarter point to a new range of 4% to 4.25%. It’s the first rate cut of President Donald Trump’s second term, following a nine-month pause prompted by uncertainty surrounding the administration’s major policy shifts. But the economy’s future remains up in the air, Fed Chair Jerome Powell told reporters following the conclusion of the Fed’s monetary policy meeting. “It’s not incredibly obvious what to do,” he said.. The Fed moved forward with a “risk management cut,” as Powell characterized it, because central bankers can’t wait around forever for the effects of Trump’s policies to become crystal clear. The Fed’s latest decision wasn’t unanimous: Fed Governor Stephen Miran, a Trump appointee dissented, backing a larger, half-point rate cut. Fed officials penciled in one additional rate cut later in the year, according to updated economic projections. Projections for unemployment and inflation this year were unchanged compared to June estimates. Powell made it clear, growing risks to the labor market were a key reason why the Fed finally lowered rates, even though there’s also a risk of Trump’s tariffs pushing up prices. The Fed chief characterized the labor market as one of “low hiring and low firing" adding “downside risks to employment have risen.” "High unemployment among young people is a consequence of today’s low hiring environment." America’s central bankers remain in a tough spot, with both sides of their dual mandate, stable prices and maximum employment, under threat. Inflation of goods exposed to tariffs, such as furniture and appliances, have begun to climb in recent months, according to economic data. Powell said the impact of tariffs on prices has not had a “very large effect at this point” but that the full extent of those effects remains yet to be seen. In the end, it was the labor market’s future that was top of mind for Fed officials. “There really is meaningful downside risk” to the labor market, Powell said. “But let’s remember there’s a 4.3% unemployment rate and the economy is growing at 1.5%, so it’s not a bad economy.” The first question Powell was asked was about Miran’s arrival at the Fed. “So, we did welcome a new committee member today and, as we always do, the committee remains united in pursuing our dual mandate goals.” As Fed officials contend with a complicated economic puzzle, the central bank’s powerful Board has seen some unprecedented developments in recent months. The future of Fed Governor Lisa Cook remains up in the air and Miran is a new voice at the Fed who is supportive of more aggressive rate cuts. Powell confirmed 'We’re strongly committed to maintaining our independence and beyond that, I really don’t have anything to share.” CNN  Corporate leaders regularly praise the Trump administration and its policies in public. Behind closed doors, their mood is darker.
At a recent meeting of CEOs and others at the Yale School of Management, America’s business leaders sounded off on concerns about tariffs, immigration, foreign policy matters and "an increasingly chaotic, hard-to-navigate business environment". The meeting included prominent CEOs such as Motorola Solutions Greg Brown and Booking Holdings, Glenn Fogel. Attendees included the heads of major manufacturers, consumer brands, automakers, tech companies and investment firms. Many shared their concerns in a private conference room. They didn’t want to speak publicly for fear their companies could be targeted by the White House or they could attract criticism from Trump. In a series of poll questions, the executives made their frustrations known. Asked if tariffs had been helpful or hurtful to their businesses, 71% of respondents described the tariffs as harmful. Executives also confirmed U.S. consumers and domestic importing companies were bearing the brunt of the tariffs, not exporting companies or countries. The Trump administration has made tariffs core to its economic agenda, hoping to spur a resurgence in domestic manufacturing by bringing jobs back to the U.S. from overseas. Most of the CEOs took a different view. When asked whether they planned to invest more in U.S. manufacturing and infrastructure, 62% of respondents said they didn’t plan to do so because of uncertainty "Tariffs, immigration policies and concerns about the economy are weighing on leaders and preventing them from feeling confident enough today to make new investments." Not all CEOs in the room criticized the administration. Several said they appreciated efforts among Trump officials to correct trade imbalances and reinforce the country’s borders, but they took issue with the way some policies were being carried out. “There’s a fair amount of confusion,” said Kathwari of Ethan Allen, which produces many of its products in the U.S. “The focus on making trade fair between America and the rest of the world is important, but it’s got to be managed so it does not create chaos.” CEOs were nearly unanimous in expressing displeasure about Trump’s efforts to pressure Fed Reserve Chair Jerome Powell to lower interest rates: 80% of respondents said Trump wasn’t acting in the best long-term interests of America by doing so. 71% of respondents said the Fed’s independence had been eroded by Trump’s actions. A good portion of the discussion also focused on "state capitalism". Nvidia and AMD will share a portion of certain overseas chip sales with Washington. The U.S. will get what has come to be known as a “golden share” in U.S. Steel as a condition of Nippon Steel’s takeover. Executives saw the recent moves as concerning, a sign of government encroaching on the free-market ethos that long defined the U.S. Behind closed doors of course. WSJ.  Employers cut jobs at the fastest rate in four years as companies continue to count the costs of Rachel Reeve’s Budget tax raid according to The Telegraph Live today ...
A Bank of England survey of business leaders revealed that employment rates fell 0.5pc in the three months to August, the sharpest fall since 2021. Almost half of companies said they were cutting jobs on the back of the Chancellor’s decision to increase employer national insurance contributions. Since the tax increases came into force in April, two thirds of companies said they had reported lower profits, 34pc had raised prices and 20pc were paying staff lower wages than they would have done otherwise. Executives surveyed also cut their expectations for headcount growth over the coming year to 0.2pc. Bosses also increased their expectations for inflation over the coming year by 0.1 percentage point to 3.3pc. The data will pile fresh pressure on the Chancellor as she mulls further tax increases in the upcoming Autumn budget to plug a black hole in the country’s finances as the UK’s long-term borrowing costs surge. Separately, data from the construction industry revealed the sector is in its longest continuous downturn since the pandemic as house building continues to decline. Construction activity in the UK fell for the eight month in a row as the industry suffers from a drop in housing and civil engineering projects. The Manufacturing PMI for August was 47.0, reflecting a three-month low and signaling a continued contraction below the neutral point of 50.0 for the eleventh consecutive month https://www.telegraph.co.uk/business/2025/09/04/tax-rises-causing-bond-sell-off-rachel-reeves-warned/  Chinese leader Xi Jinping and Russian President Vladimir Putin have long showcased their bromance on the world stage. Now, they’re embracing a powerful new friend: Indian Prime Minister Narendra Modi. This a great article from Jenni Marsh, Bloomberg Balance of Power series
Pictures of the three leaders laughing on the sidelines of the Shanghai Cooperation Organisation summit in the Chinese city of Tianjin signaled the beginning of a new chapter in regional diplomacy. “Exchanging perspectives with President Putin and President Xi during the SCO Summit,” Modi posted on his official X account. For Xi, the optics could hardly have been better. As US President Donald Trump’s tariffs and foreign-policy swings upend America’s global standing, China’s leader is seeking to elevate Beijing’s position on the world stage. Making up with Modi is part of that push. It’s just two years ago that Xi broke decades of precedent to skip a Group of 20 summit in New Delhi, dealing a public snub to Modi as tensions simmered between the world’s two most populous nations. Now, with the US targeting Indian and Chinese exports with tariffs past 50%, the neighbors are putting aside their border dispute and eyeing ways to do more business. And while Putin and Modi have long been partners, Russia is India’s primary defense supplier after all, the three men together forging such a united front stands out. That show of common purpose calls into question how effective Trump’s campaign to prise India away from Russian oil, and convince China to buy more from the US, is really going to be. The answer may come only when Trump arrives in Beijing for his own taste of Xi’s diplomatic charm, the date for which still hasn’t been set. For the time being, the emergence of a new Xi-Putin-Modi alliance is a worrying development for defenders of the US-led global order. Jenni Marsh Bloomberg In international relations we call this "The Theory of Countervailing Power" in action. JKA Trump’s “America First” Is Not Realism. It is evidence of “the self-deception that believes the lie”. The Theory of Countervailing Power will prevail. Additional quotes from Jonathan Kirshner and Lorenz Hart. Bloomberg's Balance of Power, bringing you the latest in global politics. If you haven’t yet, sign up here. https://www.bloomberg.com/account/newsletters/politics?source=NLshare Read the full article here : https://www.bloomberg.com/news/newsletters/2025-09-01/xi-hosting-modi-putin-sends-a-message-to-trump?srnd=undefined |
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