China has significantly reduced its holdings of U.S. Treasury bonds, with Trump urgently rejecting a $400 million arms sale to Taiwan. China cut its U.S. bond holdings by $25.7 billion in one go.
China reduced its U.S. bond holdings by $25.7 billion in a single month, with the total holdings plummeting to $730.7 billion, the lowest level since 2009. Almost simultaneously, the Trump administration abruptly halted a $400 million military aid package to Taiwan.
These two heavy blows may seem independent, but they actually hide a mystery: China is using financial means to shatter the U.S. strategic layout, while the White House's panicked response reveals its fragile essence under the debt crisis. When 'de-dollarization' meets 'Taiwan Strait competition,' a covert battle that will change the global power structure has already begun.
But what is more intriguing is the operational rhythm: over the past three years, China has cumulatively reduced its U.S. bond holdings by over $300 billion, but each time it has been 'small steps, quick running.' This time, the sudden increase in speed clearly responds to recent U.S. actions.
Look at the recent bizarre actions by the U.S.: On September 18, Trump signed an executive order prohibiting the use of federal funds to procure Xinjiang cotton products; on the same day, the State Department announced 'accelerated approval' for military sales to Taiwan.
On the surface, Trump's refusal to approve military aid to Taiwan seems like 'showing weakness,' but in reality, he has been pushed to a corner by reality. Internal Pentagon documents show that the $400 million military aid includes the latest 'Spring Knife-600' drones, which, if delivered to the Taiwan authorities, would significantly alter the balance of power in the Taiwan Strait.
However, Trump dares not approve it because he is burdened by three major mountains. The first mountain is the debt crisis. The total U.S. national debt has surpassed $37 trillion, with interest payments accounting for 25% of fiscal revenue.
The second mountain is electoral politics. With the 2026 midterm elections approaching, Trump needs funding support from the military-industrial complex. But the defense giants are now in dire straits: Lockheed Martin is being investigated by Congress due to delays in F-35 deliveries, and Boeing has lost over $20 billion due to the halt of 737 MAX production. If they lose the Chinese market, their stock prices could drop another 30%.
The third mountain is the centrifugal force of allies. Germany and France have begun to settle oil trade in yuan, and the proportion of yuan in Saudi oil exports to China has risen to 35%. When the 'petrodollar' system shows cracks, no matter how tough Trump is, he cannot stop the trend.
China's counterattack is far more than simply reducing U.S. bonds. Observing recent actions reveals a clear triple strategic layout. First move: Building a wall with gold. The central bank has increased its gold reserves for 10 consecutive months, reaching 74.02 million ounces (approximately 2,302 tons) by the end of August.
This figure may not seem large, but considering that China's annual gold production is only 400 tons, it is equivalent to hoarding all of the production from the past five years.
Even more astonishing is that China requires all imported gold to be settled in yuan. In the first half of 2025, the trading volume of yuan-denominated gold on the Shanghai Gold Exchange surged by 180%, directly impacting the pricing power of the London gold and silver market.
Second move: Rare earth chokehold. In July, China implemented an export licensing system for rare earth magnets, and the approval rate plummeted to 12%. As a result, American military enterprises suffered heavy losses: Raytheon was forced to suspend its Tomahawk missile production line, and the rare earth supply gap for General Electric's F-35 engine reached 30%. This 'chokehold' tactic is more painful for the U.S. than direct military strikes.
Third move: One Belt One Road chokehold. The China-Kyrgyzstan-Uzbekistan railway officially broke ground on September 15, which will open up the Eurasian land corridor, shortening China's land transport time to Europe to 7 days. Coupled with the digital yuan's proportion in cross-border settlement surpassing 15%, the SWIFT system, which the U.S. takes pride in, is being undermined.
The Trump administration's indecision in the Taiwan Strait has exposed the deep contradictions in U.S. strategy. On one hand, the DPP authorities continue to provoke the 'One China Principle,' with military purchase amounts from the U.S. surging 47% year-on-year from January to August 2025.
On the other hand, the frequency of U.S. warships crossing the Taiwan Strait has decreased by 35%, and there have even been instances where the Reagan carrier strike group canceled its Western Pacific deployment.
This contradiction stems from economic realities. The Taiwan issue is essentially a microcosm of U.S.-China strategic competition: when China's manufacturing share of the global market exceeds 35% and its R&D investment surpasses that of the U.S. by 30%, the traditional U.S. strategy of 'using Taiwan to contain China' is losing effectiveness.
Just like during the Korean War in 1950, when the U.S. misjudged China's determination to intervene; now, on the Taiwan Strait issue, the U.S. similarly underestimates China's will to maintain sovereignty.
Saudi Arabia is settling oil transactions in yuan, Russia is using gold to hedge against ruble risks, and ASEAN is promoting a local currency settlement system. These changes may seem scattered, but they constitute a global wave of 'de-dollarization.' Just like the Portuguese navigators circumvented the Cape of Good Hope in the 15th century, China is opening new financial routes.
Looking back at this smoke-free war, the most profound insight is that great power competition has long transcended military confrontation, turning to deep contests in finance, technology, and rules.
Just as 19th-century Britain reshaped global trade with steam engines, 21st-century China is injecting new momentum into the world order through technological innovation and financial wisdom. This transformation will not happen overnight, but the direction is clear; any force attempting to block the tide of history will ultimately be discarded by the times.
