How much US debt does China own and why is it important? (2024)

FAQs

How much of the US debt is owned by China? ›

China and Japan are the largest foreign investors in American government debt. Together they own $2 trillion — more than a quarter — of the $7.6 trillion in US Treasury securities held by foreign countries.

Key Takeaways

China invests heavily in U.S. Treasury bonds to keep its export prices lower. China focuses on export-led growth to help generate jobs. To keep its export prices low, China must keep its currency—the renminbi (RMB)—low compared to the U.S. dollar.

A nation saddled with debt will have less to invest in its own future. Rising debt means fewer economic opportunities for Americans. Rising debt reduces business investment and slows economic growth. It also increases expectations of higher rates of inflation and erosion of confidence in the U.S. dollar.

Nearly every year, the government spends more than it collects in taxes and other revenue, resulting in a deficit. (The debt ceiling, set by Congress, caps how much the U.S. can borrow to pay for its remaining bills.) The national debt, now at a historic high, is the buildup of its deficits over time.

Domestic Holders of Federal Debt

The Federal Reserve, which purchases and sells Treasury securities as a means to influence federal interest rates and the nation's money supply, is the largest holder of such debt.

Which countries hold the most US debt? Over the past 20 years, Japan and China have owned more US Treasuries than any other foreign nation. Between 2000 and 2022, Japan grew from owning $534 billion to just over $1 trillion, while China's ownership grew from $101 billion to $855 billion.

Many people believe that much of the U.S. national debt is owed to foreign countries like China and Japan, but the truth is that most of it is owed to Social Security and pension funds right here in the U.S. This means that U.S. citizens own most of the national debt.

So if the U.S. cannot pay its creditors, interest rates on U.S. debt would go up, creating a cascade of higher interest rates. So mortgage rates, credit card rates, car loan rates. All would become more expensive. Finally, there is a real concern about the economy — that a default could spark a recession.

Consequences of Owing Debt to the Chinese

If China called in all of its U.S. holdings, the U.S. dollar would depreciate, whereas the yuan would appreciate, making Chinese goods more expensive.

Tax cuts, stimulus programs, increased government spending, and decreased tax revenue caused by widespread unemployment account for sharp rises in the national debt.

How can the US pay off its debt? ›

Of course, just as with an individual or family, cutting spending and increasing revenue are smart first steps. Beyond that, the government considers things like new taxes, a higher retirement age, removing loopholes from the tax code, and more to reduce annual deficits and the national debt.

High levels of debt can diminish economic growth. Rising debt service costs will consume the discretionary budget, crowding out all other priorities; cause higher interest rates and borrowing costs for public and private sectors; weaken investment; and erode the standard of living.

The Fed tries to influence the supply of money in the economy to promote noninflationary growth. Unless there is an increase in economic activity commensurate with the amount of money that is created, printing money to pay off the debt would make inflation worse.

On January 8, 1835, president Andrew Jackson paid off the entire national debt, the only time in U.S. history that has been accomplished.

It's high because the U.S. continues to spend more than it receives in revenue. Therefore, it must issue more debt to cover the difference. The national debt is an accumulation of federal budget deficits. Every spending program and tax cut adds to the debt unless paid for by new appropriations.

Therefore, China's national debt has surged almost three times that of the United States in the past 12 months. In the third spot, Japan has a national debt of $13.36 trillion, indicating a drop of $1.49 trillion YoY.

For a long time, the biggest holder of U.S. debt was China. But did you know that in late 2016, Japan overtook China as the biggest foreign holder of U.S. debt? Japan and China are, by far, the two biggest holders of U.S. debt – but the top five is filled with countries that you might not expect.

China's $23 Trillion Local Debt Crisis Threatens Xi's Economy - Bloomberg.

The United States boasts both the world's biggest national debt in terms of dollar amount and its largest economy, which resolves to a debt-to GDP ratio of approximately 128.13%. The United States' government's spending exceeds its income most years, and the US has not had a budget surplus since 2001.

For several years, the nation's debt has been bigger than its gross domestic product, which was $26.13 trillion in the fourth quarter of 2022. Debt-to-GDP is a useful metric for analyzing the debt over long time spans, as it puts the debt into relative terms by comparing it against the size of the national economy.

Who holds most of China's debt? ›

But other experts argue the risk of a hard landing is low. China has little overseas debt, and a high national savings rate. In addition, most of the debt is state owned – state-controlled banks loaned funds to state-controlled firms – giving the government the ability to manage the situation.

To pay back one million dollars, at a rate of one dollar per second, would take you 11.5 days. To pay back one billion dollars, at a rate of one dollar per second, would take you 32 years. To pay back one trillion dollars, at a rate of one dollar per second, would take you 31,688 years.

Potential repercussions of reaching the ceiling include a downgrade by credit rating agencies, increased borrowing costs for businesses and homeowners alike, and a dropoff in consumer confidence that could shock the United States' financial market and tip its economy—and the world's—into immediate recession.

The financial position of the United States includes assets of at least $269.6 trillion (1576% of GDP) and debts of $145.8 trillion (852% of GDP) to produce a net worth of at least $123.8 trillion (723% of GDP){{refn|name=position|group=lower-alpha|See section Estimated financial position, Q1 2014 for calculations.

China owns and controls almost 192,000 acres of farmland right here in the United States. To be clear, it's not a huge percentage of our total farm acreage by any stretch. According to the FDA, there are more than 35 million acres of farmland in the U.S. which are owned by foreign investors.

The $31 trillion gross federal debt equals debt held by the public plus debt held by federal trust funds and other government accounts. In very basic terms, this can be thought of as debt that the government owes to others plus debt that it owes to itself. Learn more about different ways to measure our national debt.

Stocks, corporate debt and the value of the dollar would probably plummet. Volatility could be extreme, not just in the United States but across the world. In 2011, around when lawmakers struck a last-minute deal to avoid breaching the debt limit, the S&P 500 fell 17 percent in just over two weeks.

What country is most in debt? ›

Norway is the country with the highest level of household debt based on OECD data followed by Denmark and the Netherlands.

As a result, the U.S. actually did become debt free, for the first and only time, at the beginning of 1835 and stayed that way until 1837. It remains the only time that a major country was without debt. Jackson and his followers believed that freedom from debt was the linchpin in establishing a free republic.

Previous research showed that, at least theoretically, government debt could be rolled over forever without the need for a budget surplus, as long as the economy has a rate of growth that is greater than the interest rate.

The Negative Effect of Too Much Debt

As the federal debt continues to rise, it will become increasingly difficult to stimulate economic growth. This could lead to some risky policy decisions from the federal government, complete with unintended consequences.

It might appear impossible, but many consumers succeed in living their entire lives without any debt. People of a variety of ages and income levels have made this choice. It's not an easy feat, but if it's something you truly want, don't let naysayers talk you out of it.

The job of actually printing currency bills belongs to the Treasury Department's Bureau of Engraving and Printing, but the Fed determines exactly how many new bills are printed each year.

Does Printing Money Cause Inflation? Yes, "printing" money by increasing the money supply causes inflationary pressure. As more money is circulating within the economy, economic growth is more likely to occur at the risk of price destabilization.

Fewer than one quarter of American households live debt-free. Learning ways to tackle debt can help you get a handle on your finances.

The U.S. has had debt since its inception. Our records show that debts incurred during the American Revolutionary War amounted to $75,463,476.52 by January 1, 1791. Over the following 45 years, the debt grew.

The American economy is fueled by high productivity, transportation infrastructure, and extensive natural resources. Americans have the highest average household and employee income among OECD member states.

Who is the richest government in the world? ›

1 Foreign governments hold a large portion of the public debt, while the rest is owned by U.S. banks and investors, the Federal Reserve, state and local governments, mutual funds, pensions funds, insurance companies, and holders of savings bonds.

At the end of 2021, of the 98 countries for whom data was available, Pakistan ($27.4 billion of external debt to China), Angola (22.0 billion), Ethiopia (7.4 billion), Kenya (7.4 billion) and Sri Lanka (7.2 billion) held the biggest debts to China.

At the end of 2022 (the most recent data available), domestic creditors held 70 percent of the outstanding debt held by the public. The remaining 30 percent was held by foreign creditors. The Federal Reserve typically accounts for a significant proportion of debt held by the public owned by domestic investors.

1783: Raising Taxes to Meet Operating Expenses

Alexander Hamilton rallied for the government to assume some debt and help meet its expenses. He pushed the framers of the new Constitution to establish measures to provide the assurance that the debt would be paid, and thus increase confidence in the growing government.

For the fourth quarter of 2019, total wealth in the U.S. was $111.04 trillion.

Therefore, China's national debt has surged almost three times that of the United States in the past 12 months. In the third spot, Japan has a national debt of $13.36 trillion, indicating a drop of $1.49 trillion YoY.

In 2021, a remote coal town in northeastern China was forced to undergo an unprecedented financial restructuring. Its struggles since are an ominous sign for Chinese President Xi Jinping as other heavily indebted municipalities look set to follow suit.

For several years, the nation's debt has been bigger than its gross domestic product, which was $26.13 trillion in the fourth quarter of 2022. Debt-to-GDP is a useful metric for analyzing the debt over long time spans, as it puts the debt into relative terms by comparing it against the size of the national economy.

What has the most debt in America? ›

Mortgage balances, the largest source of debt for most Americans, rose 5.9 percent between 2020 and 2021. The average mortgage balance is $220,380, according to Experian. Auto loan balances reportedly rose 6.5 percent year-over-year in 2021, and the average auto loan balance is $20,987.

When adding portfolio debts (including the $1 trillion of U.S. Treasury debt purchased by China's central bank) and trade credits (to buy goods and services), the Chinese government's aggregate claims to the rest of the world exceed $5 trillion in total.

Key Takeaways. Whether you're an American retiree or a Chinese bank, American debt is considered a sound investment. The Chinese yuan, like the currencies of many nations, is tied to the U.S. dollar. Because of varying maturities dates, China would be unable to call in all its Treasury holdings at once.

A neologism, the term was first coined by Indian academic Brahma Chellaney in 2017, to allege that the Chinese government leverages the debt burden of smaller countries for geopolitical ends. However, other analysts have described the idea of a Chinese debt trap as a "myth" or "distraction".