The United States' debt load has risen substantially since the start of the millennium, raising concerns for the country's long-term financial health among some citizens.
But who owns all of this debt? A nation's debt consists of the total amount of bonds it has issued or sold. The U.S. debt sat at nearly $30.6 trillion in the second quarter of 2022. The largest investors in U.S. Treasuries are other governments and central banks.
Key Takeaways
- China, which owns an estimated $972 billion in U.S. Treasuries, is the number-two investor among foreign governments.
- China buys Treasuries to help depress the value of its currency, the yuan. A cheaper yuan makes the country's exports less expensive for foreign buyers.
- The Chinese economy would suffer as much as, if not more than, that of the United States if China were to suddenly stop buying U.S. debt.
China's Large Position in U.S. Treasuries
China, which owns an estimated $972 billion in U.S. Treasuries, is the number-two investor among foreign governments, according to the August 2022 figures released by the U.S. Treasury. This amounts to more than 13% of the U.S. debt held overseas and about 3.2% of the United States' total debt load.
Why These Big Numbers Aren't Necessarily a Problem
China's huge investment in U.S. government bonds has stirred controversy in recent years for two reasons pertaining to perceived risk.
Slower U.S. Growth
If China stops buying or elects to sell even a small portion of its position, U.S. Treasury prices would fall, and yields would rise. The result of higher rates, in turn, would likely be slower economic growth and higher borrowing costs for the U.S. government. Some also view China's huge Treasury position as leaving the United States economically vulnerable to the decisions of a foreign government.
This may seem like a potential danger until you consider why China buys so much U.S. debt. Although the reason can get highly technical, in short, China buys Treasuries to help depress the value of its currency, the yuan. A cheaper yuan makes the country's exports less expensive for foreign buyers, thereby keeping the country's export-based economy chugging along.
Note
If the U.S. economy suffers, it often impacts the Chinese economy because the two have such an intertwined trade relationship. China is America's largest trade partner.
Consequently, the Chinese economy would suffer as much, if not more, than that of the United States if China were to suddenly stop buying U.S. debt.
China Has an Interest in U.S. Debt
Since China holds such a large position in U.S. debt, the nation has a vested interest in maintaining the health of the Treasury market. Subsequently, this motivates China to avoid actions that could cause Treasury prices to plunge.
China did utilize its large position in Japanese government bonds to influence discussions surrounding Japan's purchase of disputed islands during September 2012. In addition, the Chinese government felt compelled to comment on the U.S. debt ceiling debate in October 2013.
With under two weeks to go until the United States would have exceeded the limit, thus raising the possibility of a default, China's Vice Foreign Minister, Zhu Guangyao, warned U.S. politicians that "the clock is ticking." Guangyao said, "We ask that the United States earnestly takes steps to resolve in a timely way the political issues around the debt ceiling and prevent a U.S. debt default to ensure the safety of Chinese investments in the United States."
Note
It is unlikely that China will sell off U.S. debt because of the effects that would have on the country's economy.
This helps demonstrate that China may indeed try to influence the course of events in the United States when it perceives a threat to its interests.
Would China Stop Buying U.S. Treasuries?
One aspect of China's economy argues against its being able to invest as much in Treasuries as it did in the 1990s and 2000s. For years, China generated a massive amount of dollar earnings by virtue of its trade surplus with the United States.
These dollars need to be invested somewhere, and the U.S. Treasury market, due to its enormous size, was one of the few places that China could recycle its surplus greenbacks without disrupting the market. Today, however, China's trade surplus is shrinking, which means fewer dollars to invest in Treasuries.
Don't Overemphasize Global Trends
The bottom line here is that the rising level of U.S. debt is problematic. To many citizens, the high percentage of Treasuries now owned by a rising economic rival seems even more troublesome. While little reason exists to expect that China will engage in any actions amounting to economic warfare, it may still be compelled to buy fewer Treasuries due to its decreasing trade surplus.
Individual investors are better served by constructing their bond portfolios based on their own specific situation rather than news headlines or broader global trends.
Frequently Asked Questions (FAQs)
FAQs
China is one of the United States's largest creditors, owning about $859.4 billion in U.S. debt. 1 However, it does not own the most U.S. debt of any foreign country. Nations borrowing from each other may be as old as the concept of money.
How much U.S. debt does China actually own? ›
US Treasurys Owned by China, in USD Billions
$797.7 billion of the total $8,023.7 billion U.S. national debt.
What happens if China sells U.S. debt? ›
It's going to put it into bonds of other countries. It will have to buy other currencies in order to invest in those countries' bonds. So US interest rates will no doubt rise as the supply of US Treasury bonds suddenly increases and the dollar will fall as China moves a lot of money out of dollars.
Which country has the highest debt? ›
At the top is Japan, whose national debt has remained above 100% of its GDP for two decades, reaching 255% in 2023.
Is China dumping US Treasuries? ›
Beijing, vigilant in the protection of its overseas assets, has slashed its holdings of US Treasury bills by 25 per cent since early 2021 to the tune of US$280 billion. Its position hit a 14-year low of US$769.6 billion in October 2023, a decline commonly attributed to a conscious effort to diversify its holdings.
Who owns most of U.S. debt? ›
The largest holder of U.S. debt is the U.S government. Which agencies own the most Treasury notes, bills, and bonds? Social Security, by a long shot. The U.S. Treasury publishes this information in its monthly Treasury statement.
How much money does the U.S. owe China live? ›
The U.S. debt to China is $1.17 trillion as of January 2018. That's 19 percent of the $6.26 trillion in Treasury bills, notes, and bonds held by foreign countries. The rest of the $21 trillion national debt is owned by either the American people or by the U.S. government itself.
Does Russia own any U.S. debt? ›
Russia divested from all US bond instruments, the only debts the Federal government has, and still owes the US and other investors nearly 300 billion US Dollars. The national debt in Russia was forecast to increase between 2023 and 2028 by in total 16.1 billion U.S.
Who has more debt U.S. or China? ›
Debt as a share of GDP has risen to about the same level as in the United States, while in dollar terms China's total debt ($47.5 trillion) is still markedly below that of the United States (close to $70 trillion). As for non-financial corporate debt, China's 28 percent share is the largest in the world.
What country owes the U.S. the most money? ›
As a result, totals from January 2023 are lower than reported. As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).
The 20 countries with the lowest national debt in 2022 in relation to gross domestic product (GDP)
| Characteristic | National debt in relation to GDP |
|---|
| Macao SAR | 0% |
| Brunei Darussalam | 2.06% |
| Kuwait | 3.08% |
| Hong Kong SAR | 4.27% |
9 more rowsApr 10, 2024
Under current policy, the United States has about 20 years for corrective action after which no amount of future tax increases or spending cuts could avoid the government defaulting on its debt whether explicitly or implicitly (i.e., debt monetization producing significant inflation).
Why is U.S. debt so high? ›
It began rising at a fast rate in the 1980's and was accelerated through events like the Iraq Wars and the 2008 Great Recession. Most recently, the debt made another big jump thanks to the pandemic with the federal government spending significantly more than it took in to keep the country running.
Does China own land in America? ›
China owns 384,000 acres of American agricultural land. That's a 30% increase just since 2019. And on top of that, they own land near an air force base in North Dakota.
Why does the US owe China so much money? ›
The United States supported China's entrance into the World Trade Organization at the turn of the millennium, which led to an export boom of Chinese goods into the U.S. China ended up parking much of its sales in U.S. Treasurys, CNN reported, because of their perceived safety as an investment.
Why is China dumping U.S. debt? ›
Selling Treasurys is a fast way to whip up U.S. dollars, and China will sometimes use extra dollars to go out on the global market and buy up their own currency. That artificially pumps up its value. It's like planting someone at an auction to drive up your prices.
How much money does China have invested in the United States? ›
China's FDI in the United States (stock) was $28.7 billion in 2022, down 7.2 percent from 2021.
How much land does China own in the U.S. map? ›
China owns 380,000 acres of land in the U.S. Here's where
The Smithfield feed processing mill producing food for nearby hog-raising farms in Milford, Utah. In 2021, a Chinese company bought land near an Air Force base in Grand Forks, N.D., sending lawmakers into a frenzy.
Why does the U.S. owe Japan money? ›
Why does the US owe so much debt to Japan? Because this has been an industrial policy of Japan and America, to give Japan the access to US market, and Japan to actively encourage lower yen, so to export to US at cheaper price.
