Why is u.s. in debt to china




















China is taking steps to make its currency, the yuan , transition to a global currency. To do that, China had to loosen its peg to the dollar. That made the yuan more attractive to forex traders in global markets.

China's economic growth has slowed over the years. As China's exports decline, it is less able to invest in U. China also is liberalizing its control of the yuan, also called the renminbi. It has opened yuan trading centers in London and Frankfurt. China is also responding to accusations of manipulation. Most countries want their currency values to fall so they can win global currency wars.

Countries with lower currency values export more since their products cost less when sold in foreign countries. The Chinese government uses U. It receives these dollars from Chinese companies that receive them as payments for their exports. It allows the U. Treasury to borrow more at low rates. Congress can then increase the federal spending that spurs U. Owning U. Treasury notes helps China's economy grow. Demand for dollar-denominated bonds raises the dollar value compared to that of the yuan.

That makes Chinese exports cheaper than American-made goods, increasing sales. China's position as the largest foreign holder of U. It is responsible for lower interest rates and cheap consumer goods.

If it called in its debt, U. On the other hand, if China called in its debt, the demand for the dollar could plummet. This dollar collapse could disrupt international markets even more than the financial crisis. China's economy would suffer along with everyone else's. Dublin is a focal point for international fund management but also represents the European branches of U. However, there has been a drop in Ireland's U. Luxembourg is the fifth-largest holder of U. Treasuries, equal to about 3.

Government Accountability Office. Department of Treasury. Treasury Bonds. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes.

Your Money. Personal Finance. Your Practice. Popular Courses. Key Takeaways Roughly three-quarters of the government's debt is public debt, which includes Treasury securities. Japan is the largest foreign holder of public U. China ranks second in total U. Article Sources. Investopedia requires writers to use primary sources to support their work. China may not be willing to do that, as it makes little economic sense. If China or any other nation having a trade surplus with the U. Treasurys or even starts dumping its U.

The ongoing worries about China's increased holding of U. Treasurys or the fear of Beijing dumping them are uncalled for. Even if such a thing were to happen, the dollars and debt securities would not vanish. They would reach other vaults. Although this ongoing activity has led to China becoming a creditor to the U. Considering the consequences that China would suffer from selling off its U. Even if China were to proceed with the selling of these reserves, the U.

It can also take other measures like Quantitative Easing QE. Although printing dollars would reduce the value of its currency, thereby increasing inflation, it would actually work in favor of U. Real repayment value will fall proportionately to the inflation—something good for the debtor U. Although the U. Effectively, the U. China, on the other hand, needs to be concerned about loaning money to a nation that also has the limitless authority to print it in any amount.

High inflation in the U. Willingly or unwillingly, China will have to continue to purchase U. Geopolitical realities and economic dependencies often lead to interesting situations in the global arena. China's continuous purchase of U.

It continues to raise concerns about the U. The reality, however, is not as bleak as it may seem, for this type of economic arrangement is actually a win-win for both nations. Treasury Direct. United States Census Bureau.

Federal Reserve of St. Accessed Aug. National Bureau of Economic Research. Fiscal Policy. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.

At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money.

Personal Finance. Your Practice. Popular Courses. Bonds Treasury Bonds. Table of Contents Expand. Chinese Economics. Self-Correcting Currency Flow. China's Need for a Weak Renminbi. Impact of China Buying U. USD as a Reserve Currency. Risk Perspective for U. Risk Perspective for China. The Bottom Line. Key Takeaways China invests heavily in U. Treasury bonds to keep its export prices lower.

China focuses on export-led growth to help generate jobs. China chooses U.



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