"We care about whether foreign governments or entities are buying U.S. Treasurys because it impacts the cost of borrowing in this country," said Jesse Wheeler of Morning Consult. Mark Schiefelbein/POOL/AFP via Getty Images
The U.S. Treasury has been issuing quite a lot of debt to finance government spending. In fact, Tuesday it started auctioning off $112 billion in securities for this week.The total debt is nearly $34 trillion, but changes somewhat depending on how you calculate it. And about a third, or 30%, of the publicly held national debtis owned by foreign countries and foreign investors.
The biggest foreign holder of U.S. debt is Japan, followed by China. Which brings us to this: China appears to be offloading its U.S. Treasurys. If so, is that a problem?
“Total Chinese holdings of U.S. Treasurys were about $805 billion as of August, and that’s the lowest since June 2009,” said Win Thin, global head of currency strategy at the bank Brown Brothers Harriman. Why China would be doing this, and even whether it is actually doing this, are hotly debated.One theory: “They have to sell these Treasurys to help support the yuan,” he said.
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.
That’s one idea.Another is that China is ditching Treasurys because of trade.
“Trade barriers created under [President Donald] Trump and now continue under [President Joe] Biden explain a large part of the decrease in China purchasing U.S. Treasurys,” said Kent Smetters, a professor at the Wharton School.
With sand in the gears of international trade, China isn’t earning as many dollars, Smetters said, and therefore isn’t storing as many in Treasurys.
Finally, argument No. 3 for why China is getting rid of Treasurys is that maybe it isn’t. It just looks like it.
“China uses offshore custodians to hold some of their U.S. dollar-denominated assets,” said Christopher Vecchio, head of futures and foreign exchange for Tastylive, an options brokerage research group.
He said it could be that China is just hiding its Treasurys so people don’t poke around in its business.
Whatever the explanation, this all raises the question of why exactly do we care how interested foreign countries are in our debt?
“So we care about whether or not foreign governments or entities are buying U.S. Treasurys because it impacts the cost of borrowing in this country,” said Jesse Wheeler, senior economist at Morning Consult.
Here’s how that works.The government has to find creditors to meet its huge borrowing needs, and it casts a wide net.
“If that pool of people is just restricted to U.S. households, then the government is gonna have to pay a higher return on that debt in order to be competitive,” said Smetters of Wharton.
That would push interest rates higher — including those on home loans.So as long as they stay interested in our debt, Japan and China could be saving you money on your mortgage.
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FAQs
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. That's one idea.
Why is China selling U.S. debt? ›
"China's state-run banks likely dumped the dollar around the [Oct. 1] National Day," said a currency trader at a foreign bank, echoing the views of his peers. It appears that Chinese authorities urged state-run banks to shore up the yuan against dollars and they responded by selling Treasurys to raise needed funds.
What would happen if China collected on U.S. debt? ›
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.
Who owns most of China's debt? ›
[2] A report by the credit rating agency S&P Global in 2022 estimated that 79 per cent of corporate debt in China was owed by SOEs (the IMF does not break down the proportion of debt owed by SOEs).
What is China's debt vs U.S. debt? ›
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.
Is China's debt worse than the US? ›
China's debt overhang far exceeds the burdens facing the United States. As recently as 2020, total debt in the United States relative to GDP exceeded China's. But as of mid-2022, China's relative debt burden stood 40 percent higher than America's.
How much land does China own in the US? ›
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.
Is China dumping U.S. dollars? ›
China's reserves has shifted its dollar reserves from Treasuries to Agencies, and made increased use of offshore custodians. The available evidence suggests that it still holds about 50 percent of its reserves in dollar bonds.
How much money does the U.S. owe China live? ›
How did USA owe China so much money? The U.S. debt to China is approximately $1.059 trillion. That's 27.8 percent of the $3.8 trillion in treasury bills, notes, and bonds held by foreign countries. The rest of the $19.9 trillion national debt is owned by either the American people or by the U.S. government itself.
Who owes the U.S. money? ›
In total, other territories hold about $7.4 trillion in U.S. debt. Japan owns the most at $1.1 trillion, followed by China, with $859 billion, and the United Kingdom at $668 billion. In isolation, this $7.4 trillion amount is a lot, said Scott Morris, a senior fellow at the Center for Global Development.
Singapore is one of Asia's major financial centers. It is also one of the most prosperous countries on the planet. And all this has been achieved without taking on any meaningful public debt. In fact, very much like Norway, Singapore has more assets than debt.
Who has the most debt on earth? ›
United States. 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%.
Is China in trouble financially? ›
China's economy is at a turning point. An old economic model underpinned by heavy investment in infrastructure and real estate is crumbling. Growth is slowing and prices are falling, raising the specter of a Japan-style slide into stagnation.
Does Russia hold any U.S. debt? ›
The value of U.S. Treasury securities held by residents of Russia amounted to 33 million U.S. dollars in June 2023, the lowest over the period under consideration. Furthermore, in March 2020, the figure decreased sharply to 3.85 billion U.S. dollars, down from 12.6 billion U.S. dollars one month prior.
Why is the U.S. in so much debt? ›
One of the main culprits is consistently overspending. When the federal government spends more than its budget, it creates a deficit. In the fiscal year of 2023, it spent about $381 billion more than it collected in revenues. To pay that deficit, the government borrows money.
Can China call in U.S. debt? ›
Nations like China typically hold US debt in the form of various US Treasury debt, including bonds and other notes. None of these instruments allow debt holders to simply demand repayment…you get the terms and conditions associated with the bond and there's little flexibility to “calling in all of their debts”.
How much money does China owe the US? ›
The United States pays interest on approximately $850 billion in debt held by the People's Republic of China. China, however, is currently in default on its sovereign debt held by American bondholders.
Did China stop buying U.S. debt? ›
China's reserves has shifted its dollar reserves from Treasuries to Agencies, and made increased use of offshore custodians. The available evidence suggests that it still holds about 50 percent of its reserves in dollar bonds.
What country owns the most U.S. debt? ›
- Japan. Japan held $1.15 trillion in Treasury securities as of January 2024, beating out China as the largest foreign holder of U.S. debt. ...
- China. China gets a lot of attention for holding a big chunk of the U.S. government's debt. ...
- The United Kingdom. ...
- Luxembourg. ...
- Canada.
Foreign holders of United States treasury debt
Of the total held by foreign countries, Japan and Mainland China held the greatest portions, with China holding 797.7 billion U.S. dollars in U.S. securities. Other foreign holders included oil exporting countries and Caribbean banking centers.
