China cut its holdings of US Treasury securities by $6.8 billion in August to $1.1035 trillion, the lowest level since May 2017, a move that experts said was aimed at diversifying the country's foreign reserves and preventing risks amid the trade war with the US.

With lower expectations for global GDP growth in the face of rising US trade protectionism and China's own need to diversify its reserve assets, it's possible that Beijing will further trim its US Treasury holdings, experts said.

According to data released by the US Department of the Treasury on Wednesday, China's holdings of US Treasury debt stood at $1.1035 trillion as of the end of August, down from $1.1103 trillion a month earlier. China remained the second-largest creditor of the US government after Japan.

"One of the major reasons China has sold some holdings of US Treasury securities is to diversify its reserve assets," Liu Xuezhi, a senior economist at the Bank of Communications, told the Global Times on Thursday.

The ongoing opening-up of the economy and the liberalization of the yuan's exchange rate call for a more diversified mix of assets in the nation's reserves, which is a necessary step to reduce financial risks, Liu noted.

China's gold reserves have increased for 10 consecutive months and stood at 62.46 million ounces (1,948.4 tons) as of the end of September, up 190,000 ounces from August, media reports said, citing data from the China Gold Association.

"US dollar assets accounted for some 60 percent of China's foreign exchange reserves, which leaves further scope for China to lower the proportion gradually and reduce its financial risks," Dong Dengxin, director of the Financial Securities Institute at the Wuhan University of Science and Technology, told the Global Times.

It is reasonable for China to keep readjusting its holdings of US dollar assets and increase other currency reserves such as euro-denominated treasuries, especially when it's possible that the US is keeping on pressuring the Chinese economy, Dong noted.

As the former largest creditor of the US, China has cut nearly $90 billion from its US Treasury holdings since June 2018, higher than Germany's holdings of $86.5 billion in US Treasury debt as of the end of August.

Japan has topped the list since June, and it remains the largest holder of US Treasury securities with its holdings reaching $1.175 trillion in August.

US economic slowdown

Experts said increasing risks associated with US Treasury debt due to a slowing US economy weighed on China's decision to cut US bonds.

US GDP growth may decrease to 2.35 percent in 2019 from 2.93 percent  rise last year, according to data from the IMF.

The IMF has warned that US GDP growth may slump for at least four years straight, with a forecast figure of 2.089 percent in 2020, 1.746 percent in 2021 and 1.559 percent in 2022.

The increasing US debt model is not sustainable, experts said. 

The scale of US government debt has been continually expanding, which would give rise to more risks associated with US Treasury yields, and the nation's economic growth rate has shown an increasingly downturn trend, Liu said.

The US 10-year Treasury yield dropped to 1.5 percent as of the end of August from 2.66 percent early in the year.

Foreign investors cut their holdings of long-term US securities in August with net sales of $41.9 billion. Net purchases by private foreign investors stood at $400 million, while net sales by foreign official institutions reached $42.3 billion, according to a statement from the US Department of the Treasury.