A little over a year ago, we showed something quite unexpected: in the span of just a few months, the tiny nation of Belgium had become the third largest foreign holder of US Treasurys.

Of course, the buying wasn't Belgium doing so for its own account, but someone using the custody services of Belgium-domiciled Euroclear. This is what we said last April.

it is quite clear that Belgium itself is not the buyer. What is not clear is who the mysterious buyer using Belgium as a front is. Because that same "buyer", who to further explain is not China, just bought another whopping $31 billion in Treasurys in February, bringing the "Belgian" total to a record $341.2 billion, cementing "it", or rather whoever the mysterious name behind the Euroclear buying rampage is, as the third largest holder of US Treasurys, well above the hedge fund buying community, also known as Caribbean Banking Centers, which held $300 billion in March. In summary: someone, unclear who, operating through Belgium and most likely the Euroclear service (possible but unconfirmed), has added a record $141 billion in Treasurys since December, or the month in which Bernanke announced the start of the Taper, bringing the host's total to an unprecedented $341 billion!

And while there had long been speculation that the mystery buyer using anonymous Belgian custody accounts is none other than China, the same nation which previously had used UK accounts precisely for the purpose of masking its purchases, there was never any proof.

Further confounding the analysis was that while "Belgium" was massively adding to its Treasury holdings over the past year, mainland China was telegraphing that it was dumping Treasurys. It got to the point that in February Japan officially surpassed China as the largest official US foreign creditor.

Then, on Friday we finally got if not direct, then certainly indirect, evidence from this month's TIC data that "Belgium" was merely a front for China.

First, note that after dropping for 6 consecutive months, official Chinese holdings had a major countertrend move and rebounded in March, jumping by $37 billion to $1.261 trillion and regaining the top US creditor spot from China.

Even more curious was the Belgian Treasury holdings update, which after flatlining in the mid-$300 billion range for one year, also had a sharp countertrend move as they suddenly tumbled by $93 billion in the month of March, a 27% of the total "Belgian" holdings.

But the real surprise emerges when stacking the monthly Chinese and Belgian holdings on top of each other. One gets the following chart, which in itself is hardly shocking...

... but becomes so when one also overlays China's offically reported monthly Forex reserves on top of the consolidated China+Belgium treasury holdings. Here one can easily see that indeed Belgium was nothing but an "anonymous" front for Chinese Treasury buying...

... and as the case has recently become, selling.

Because while we have previously commented on the dramatic capital outflow from China in recent months, which also explains why China is desperate to slam its currency but will not do it over fears of accelerating capital outflow, the combined Chinese and Belgian Treasury holdings reveal the true extent of China's USD-denomination liquidation conundrum.

As the next and final chart shows, in March the monthly drop across China's official and "anonymous" i.e., Belgian holdings, was the biggest on record!

So as a result of the latest TIC data we know know with almost complete confidence that:

i) "Belgium" is, or rather, was a front for China: either SAFE, CIC, or the PBOC itself.

ii) That Belgium's holdings, after soaring as high as $381 billion a year ago, have since tumbled back to only $2532 billon as China has dumped the bulk of its Euroclear custody holdings, and that once this number is back to its historical level of around $170-$180 billion, "Belgium" will again be just Belgium.

iii) China's foreign reserves tumbled and this was offset by a the biggest quarterly drop in Chinese pro-forma treasury holdings, which dropped by a record $72 billion in the month of March, and a record $113 billion for the quarter.

So why mask its offshore holdings? So when China proceeds to liquidate nearly $100 billion via its custody account, the US didn't feel compelled to chastise Beijing. After all there is no official confirmation that Belgium is indeed China, and likely won't be - it was merely a buffer account which China used to build up TSY holdings in, and now - to rapidly liquidate.

A better question perhaps is what is the use of funds of these tens of billions of liquidations: because what was once invested in the form of Treasurys is now invested in the form of something else... most likely real estate in San Francisco, Beverly Hills, or New York City, with a few billion left over to buy stocks.

Finally, the last thing China would want the world to know, is just how acute its capital flight truly is: a capital flight which is the only thing that is preventing the Politburo and the PBOC from cutting rates even more aggressively and/or engaging in even more outright QE than it currently does because should the chart above be matched with a comparably sharp drop in the Renminbi, and suddenly the VIX closing the day at 12 will be a very distant memory.