A teller counts U.S. dollar bills at a bank in Qionghai, south China's Hainan Province.Photo:Xinhua

China reduced its US government debt holdings in June, US Treasury Department data showed Monday, continuing a downward spiral amid fraying relations between the world's top two economies. 

China's holdings of US Treasury debt stood at $1.07 trillion in June, down $9.3 billion from the previous month, according to statistics from the US Treasury Department. 

The June reading reversed a $10.9 billion increase in May.  As of June, China remained the second-largest foreign holder of US government debt, while Japan remained atop the rankings with its US debt holdings edging up $900 million to $1.26 trillion. Total foreign holdings of US Treasury debt grew by $60.9 billion to $7.04 trillion in June. 

The June decline indicates a prevailing tendency for China to cut its holdings of US Treasury debt, as these assets could leave China in a quandary amid cooling ties with the US, Lian Ping, head of the Zhixin Investment Research Institute, told the Global Times Tuesday.

Other than May, February was the only month this year that saw China buy more US debt. 

The reduction in June was also linked to the yuan's strengthening against the US dollar during the month, although the yuan's strength paled in comparison with that of other major currencies including the euro and the pound, Lian explained, citing the impact on the relative strength of the yuan of the US clampdown on Chinese businesses and technologies.

There is a chance of capital flowing into yuan-denominated assets in the wake of the Treasury sales, he added.

In a fresh reminder of Washington's ill intentions, the US Department of Commerce announced on Monday it will further tighten restrictions on Huawei's access to US technology and add another 38 affiliates of the Chinese tech giant to the Entity List.

Fears of a US-China decoupling spreading to the financial arena are underpinning China's unloading of US debt, experts said.

It's likely that the US dollar payment and settlement system might be used to restrict China's economic activities and China's holdings of US assets could be affected, according to Lian.