The u.s. owes china this much debt gas 87 89 93


China has consistently held more than $1 trillion in U.S. debt every year since 2010. That’s when the Treasury Department changed how it measures the debt. Before July 2010, Treasury reports show China held $843 billion in debt. This makes it difficult to make long-term comparisons. How China Became One of America’s Biggest Bankers

China is more than happy to own almost a fifth of the U.S. debt owned by foreigners. Owning U.S. Treasury notes helps China’s economy grow by keeping its currency weaker than the dollar. It keeps Chinese exports cheaper than U.S. products. China’s highest priority is creating enough jobs for its 1.4 billion people.

The United States allowed China to become one of its biggest bankers because the American people enjoy low consumer prices. Selling debt to China funds federal government programs that allow the U.S. economy to grow. It also keeps U.S. interest rates low. But China’s ownership of the U.S. debt is shifting the economic balance of power in its favor. Why China Owns So Much U.S. Debt

China makes sure the yuan is always low relative to the the U.S. dollar. Why? Part of its economic strategy is to keep its export prices competitive. It does this by holding the yuan at a fixed rate compared to a "currency basket" of which the majority is the dollar.

When the dollar falls in value, the Chinese government uses dollars it has on hand to buy Treasuries. It receives these dollars from Chinese companies that receive them as payments for their exports. China’s Treasury purchases increases demand for the dollar and thus its value.

China’s position as America’s largest banker gives it some political leverage. Now and then, China threatens to sell part of its debt holdings. It knows that if it did so, U.S. interest rates would rise. That would slow U.S economic growth. China often calls for a new global currency to replace the dollar, which is used in most international transactions. China does this whenever the United States allows the value of the dollar to drop.

China would not call in its debt all at once. If it did so, the demand for the dollar would plummet like a rock. This dollar collapse would disrupt international markets even more than the 2008 financial crisis. China’s economy would suffer along with everyone else’s.

It’s more likely that China would slowly begin selling off its Treasury holdings. Even when it just warns that it plans to do so, dollar demand starts to drop. That hurts China’s competitiveness. As it raises its export prices, U.S. consumers would buy American products instead. China could only start this process if it further expands its exports to other Asian countries and increases domestic demand. China’s Debt-Holder Strategy Is Working

China’s low-cost competitive strategy worked. Its economy grew 10 percent annually for the three decades before the recession. Now it’s growing at 7 percent, a more sustainable rate. China has become the largest economy in the world. It’s outpaced the United States and the European Union. China also became the world’s biggest exporter in 2010. China needs this growth to raise its low standard of living. Despite its threats, China will continue to be one of the world’s largest holders of U.S. debt.