China’s biggest banks have figured out a neat trick: pay customers more to park their dollars, then use those dollars to buy US Treasuries. It’s asset-liability management dressed up as financial diplomacy, and it’s reshaping capital flows between the world’s two largest economies.
Foreign-exchange deposits in China surged to $1.18 trillion by the end of July, a 17.9% jump year-over-year. That wall of dollars, fed by record trade surpluses, needed somewhere to go. US government debt, with yields north of 4.7%, turned out to be a pretty compelling destination.
The deposit rate play
For years, China’s Big Five state-owned banks kept dollar deposit rates capped at 2.8%, a ceiling that had been in place since 2023. That changed in June when banks started offering rates above 3% for balances exceeding $50,000.
The math made sense for depositors. Yuan deposit rates at major state banks sit at just 0.95%. Parking your money in dollars at more than three times that rate doesn’t require a finance degree to appreciate.
