A recurring claim in discussions about American debt is that China “owns” the United States because it holds a significant chunk of U.S. Treasury securities. Some people worry that China might abruptly “cash in” or “call” this debt, potentially destabilizing the U.S. economy. Below, we unpack what these phrases really mean, how much U.S. debt China holds, and how a sudden sell-off might—or might not—affect America’s financial well-being.
According to publicly available data, China’s holdings of U.S. Treasury securities hovered around $850 billion in early 2023 [1]. While that figure may sound huge, it is worth noting that the total U.S. public debt had already surpassed $31 trillion at that time. Japan also tends to hold a comparable—or even larger—share of U.S. government debt than China does.
What’s Actually Being Held?
China’s debt holdings consist primarily of Treasury bonds, notes, and bills— government-issued financial instruments that the People’s Bank of China acquires for several reasons, including managing currency reserves and seeking relatively stable, low-risk investments.
In everyday conversations, “China cashing in U.S. debt” or “calling the debt” generally refers to selling large amounts of Treasury securities on the secondary market. When these securities mature, China could also choose not to roll over the proceeds into new Treasuries. Instead, it could redirect the funds elsewhere or convert them into other assets. Essentially, this process involves liquidating positions in U.S. Treasuries rather than holding onto them.
1. Turbulence in the Bond Market
If China decided to sell a substantial portion of its Treasury holdings quickly, there could be an immediate shock to Treasury prices and yields. When supply floods the market, prices fall, and yields (interest rates) rise, at least in the short term.
2. Pressure on the U.S. Dollar
A significant sell-off of U.S. assets can sometimes prompt downward pressure on the dollar, especially if other investors become concerned about the stability of U.S. financial markets. On one hand, a weaker dollar can help boost U.S. exports by making them cheaper abroad; on the other hand, it could raise the cost of imports, potentially fueling inflation.
3. Risks for China Itself
In choosing to sell quickly, China might harm its own investment by depressing prices for U.S. Treasuries. A sharp drop in value would reduce the return on those assets. Furthermore, a weakened U.S. economy—or one facing higher borrowing costs—could reduce American consumer demand, which in turn would negatively affect Chinese exports. In short, an abrupt sell-off could damage both countries.
Most analysts agree that an immediate, large-scale liquidation of U.S. debt by China is highly unlikely, primarily due to two factors:
While China may gradually adjust its holdings as part of long-term financial strategies, a dramatic, sudden dump of all its Treasuries appears improbable.
The notion that China “owns” the U.S. is an oversimplification. Although China holds a notable share of America’s debt, it represents only a fraction of the total U.S. debt landscape. Fears about an immediate sell-off, while often highlighted, may be overblown given the economic downsides for both nations. In reality, mutually beneficial financial ties and broader global market considerations make a massive, rapid liquidation scenario quite unlikely.
Disclaimer: This article is for informational purposes only and may not reflect the most recent data. For the latest figures, always consult official government publications and reputable financial resources.