China's recent $2 billion sale of U.S. dollar-denominated bonds, its first in three years, has drawn scrutiny for what one analyst said could be a warning to President-elect Donald Trump, who has threatened tariff hikes.
The bonds were issued in two tranches: $1.25 billion maturing in 2027 with a 4.284 percent annual interest rate; and $750 million maturing in 2029 with a 4.34 percent rate. These rates were just 1 to 3 basis points (0.01 percent to 0.03 percent) higher than U.S. Treasurys, the safest and most trusted government debt. By contrast, even AAA-rated countries like Switzerland typically pay 10 to 20 basis points above U.S. Treasury rates.
Investor demand for the bonds was extraordinary, with the issuance oversubscribed nearly 20 times, drawing $40 billion in bids for just $2 billion in supply. This bid-to-cover ratio far exceeds the 2x to 3x ratios typical of U.S. Treasury auctions, according to Bureau of Public Debt data. Newsweek reached out to the U.S. Treasury and Chinese Foreign Ministry with written requests for comment.
Marc Joffe, a policy analyst at the Cato Institute, pointed to the low interest rates as a reflection of the market's growing comfort with China's creditworthiness.
"The fact that China could achieve spreads within 1-3 basis points of U.S. Treasurys indicates that the market is rejecting Western rating agency assessments," Joffe said on X (formerly Twitter). He pointed out Moody's A1 rating for China, compared to its top-tier AAA rating for the U.S.
Arnaud Bertrand, an entrepreneur and commentator on economics, noted the unusual choice of venue: Saudi Arabia. Traditionally, sovereign bonds are issued in major global financial hubs such as London or New York. Saudi Arabia, however, is a key player in the petrodollar system, where oil is priced exclusively in U.S. dollars.
"By issuing dollar bonds in Saudi Arabia that compete directly with U.S. Treasurys, and getting essentially the same interest rate, China is demonstrating it can operate as an alternative manager of dollar liquidity right in the heart of the petrodollar system," Bertrand wrote on X.
He added that the move could be part of a larger strategy. If China were to expand such issuances to tens or hundreds of billions of dollars, countries like Saudi Arabia might begin diverting their reserves from U.S. Treasurys to Chinese bonds. This would reduce demand for American debt, forcing Washington to offer higher interest rates to attract buyers.
Bertrand also said that China might leverage its surplus dollars—generated by a $823.2 billion global trade surplus in 2023—to assist Belt and Road Initiative (BRI) partners in repaying dollar-denominated debts to Western lenders. In exchange, those nations could repay China in yuan, strategic resources, or favorable trade agreements.
"This would create a triple win for China: they get rid of their excess dollars, they help their partner countries escape dollar dependency, and they deepen these countries' economic integration with China instead of the U.S.," Bertrand said.
Bertrand called it a "low-cost demonstration" with strategic significance. "It costs China almost nothing to demonstrate, but forces Washington to contemplate some very uncomfortable possibilities," he wrote.
The timing of the bond sale comes ahead of Trump's return to office on January 20. The Republican has vowed to impose tariffs of up to 60 percent on Chinese imports.
On Friday, Chinese Vice Commerce Minister Wang Shouwen said that further tariffs would harm American consumers and called for "stable, healthy, and sustainable" trade relations, according to state-backed daily newspaper Global Times.
The U.S.-China trade war has only further escalated since Trump's last administration. Under Biden, the United States raised tariffs on products such as lithium-ion batteries and solar cells, citing unfair trade practices and the need to protect U.S. industries.
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