China further reduced its US Treasury holdings in April to their lowest level in two years. Analysts said that China is not likely to weaponize its US Treasuries in the escalating China-US trade war unless it becomes absolutely necessary.

China's holdings fell $7.5billion to $1.1 trillion, the lowest level since April 2017, according to statistics from the US Department of Treasury published on Monday.

The reduction has triggered speculations that China may dump its large portfolio of US Treasuries in retaliation to the escalating trade war. The country has also listed rare earths to fight against the US.

Although the US dollar and its domestic financial markets will be heavily hammered if China takes the move to dump US Treasury holdings, analysts noted that, at this moment, China will not take such an aggressive move because it would stir up global financial turmoil.

"China will not weaponize its US Treasuries until forced by absolute necessity," Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times on Tuesday.

However, China may further reduce its US debt holdings to limit its risk and improve its reserve portfolio by increasing its reserves of other currencies and gold, analysts said.

China's April foreign exchange reserves stood at $3.095 trillion, central bank data showed in May. The $1.1trillion US Treasury holdings still accounted for a high proportion of that figure.

As many of China's holdings of 10-year US Treasuries that were bought after the US financial crisis are up to their closure time, it's time to reconsider the reserve portfolio now, Tan Yaling, head of the China Forex Investment Research Institute, told the Global Times on Monday.

"To improve the reserve structure and ensure that it is in accordance with China's interests from a long term strategy perspective," Tan said.

US national credit is dropping, which gives China reason to reduce US Treasury holdings to reduce risks, Dong said.