Chinese commercial banks have been buying U.S. Treasuries after raising dollar deposit rates, using customer dollar funding to capture the spread between yields on U.S. government debt and low domestic deposit rates. The five largest state-owned banks had capped most dollar deposits at 2.8% since 2023, but began offering rates above 3% in June for balances exceeding $50,000; some smaller banks and foreign lenders have offered rates close to 4% since August. Foreign-exchange deposits reached $1.18 trillion at the end of July, up 17.9% from a year earlier, amid strong exports and record trade surpluses. The 10-year Treasury yield rose more than 30 basis points since early June to 4.76%, compared with a 0.95% yuan deposit rate at major state-owned banks. Because the purchases use dollars already deposited by customers rather than converting yuan, they do not directly weaken the yuan and may help retain dollar liquidity onshore. The scale of the buying and its effect on China’s overall Treasury holdings remain unclear; holdings recorded through U.S. custodians fell 13% year-on-year to $633.4 billion in June, though custody structures can obscure ultimate ownership.