Why would China sell off its U.S. debt — if that's what it's doing - Marketplace (2024)

"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.

Why would China sell off its U.S. debt — if that's what it's doing - Marketplace (3)

“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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Why would China sell off its U.S. debt — if that's what it's doing - Marketplace (2024)

FAQs

Why would China sell off its U.S. debt — if that's what it's doing - Marketplace? ›

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 called in all 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.

What country owns most of the United States? ›

Which countries own the most land in the U.S.?
  • CANADA. 31%
  • Other. 28%
  • NETHERLANDS. 12%
  • ITALY. 7%
  • UNITED KINGDOM. 6%
  • GERMANY. 6%
  • PORTUGAL. 3.6%
  • FRANCE. 3.2%
Mar 29, 2024

Is the US still borrowing money from China? ›

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.

What happens if China dumps the US treasury? ›

If China (or any other nation that has a trade surplus with the U.S.) stops buying U.S. Treasuries or even starts dumping its U.S. forex reserves, its trade surplus would become a trade deficit—something which no export-oriented economy would want, as they would be worse off as a result.

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 United States? ›

According to a 2021 report by the Department of Agriculture, China owns 384,000 acres of American agricultural land; ownership which jumped by 30% from 2019 to 2020.

Is China in debt to any other country? ›

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.

Which country has no debt? ›

1) Switzerland

Switzerland is a country that, in practically all economic and social metrics, is an example to follow. With a population of almost 9 million people, Switzerland has no natural resources of its own, no access to the sea, and virtually no public debt.

Which country is more free than the US? ›

When looking at the data from the Human Freedom Index, Switzerland emerges as the freest country in the world with a score of 9.11. It is followed closely by New Zealand (9.01) and Denmark (8.98).

What is the richest country in the Americas? ›

The United States is the largest economy in North America, comprising about 80% of the continent's gross domestic product (PPP).

How much does the US government owe for social security? ›

As of December 2022 (estimated), the intragovernmental debt was $6.18 trillion of the $31.4 trillion national debt. Of this $6.18 trillion, $2.7 trillion is an obligation to the Social Security Administration.

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.

How can the US get out of debt? ›

Tax hikes alone are rarely enough to stimulate the economy and pay down debt. Governments often issue debt in the form of bonds to raise money. Spending cuts and tax hikes combined have helped lower the deficit. Bailouts and debt defaults have disadvantages but can help a government solve a debt problem.

How much of the U.S. debt is owned by China? ›

Nearly half of all US foreign-owned debt comes from five countries. All values are adjusted to 2023 dollars. 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).

How much U.S. debt has China bought? ›

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.

Who does China owe debt to? ›

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.

Why are countries selling U.S. bonds? ›

The strength of the dollar has spurred many central banks, including those in China and Japan, to stop adding to their stockpiles of U.S. Treasurys or even to sell them down, analysts say. They use the dollars they get from selling U.S. bonds to buy their own currencies, boosting the value.

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