What happens if China dumps US bonds?
If China “dumped” USA treasuries, they would take a serious monetary loss. The price of the treasuries would drop, effective raising the return for those who bought the bonds.
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.
Consequences of Owing Debt to the Chinese
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.
More importantly, China's footprint in the U.S. bond market is a fraction of what it once was. China owns less than 3% of all outstanding Treasuries, the smallest share in 22 years, and again substantially down from the record 14% in 2011. Granted, China also likely holds Treasuries via other countries like Belgium.
Japan owns the most at $1.1 trillion, followed by China, with $859 billion, and the United Kingdom at $668 billion.
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.
- 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.
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.
[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).
Can China dump US Treasuries?
China sells the most US assets in 4 years, dumping $21 billion of US stock and Treasury bonds. Chinese investors sold $21.2 billion in US equities and Treasuries, the US Treasury said Wednesday. Chinese investors sold an all-time record $5.1 billion of US stocks that month.
Russia divested from all US bond instruments, the only debts the Federal government has, and still owes the US and other investors nearly 300 billion US Dollars. The national debt in Russia was forecast to increase between 2023 and 2028 by in total 16.1 billion U.S.
With $1.1 trillion in Treasury holdings, Japan is the largest foreign holder of U.S. debt.
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.
Total Debt Held: $91.3 Billion
Germany is another country in Europe that owes money to the US. The United States has been a major creditor to the country in the past as well. As of January, the amount owed by Germany to the US is $91.3 billion.
While Chinese ownership of U.S. land has been a hot topic among lawmakers — even becoming the center of a Montana Senate race this year — China only had a stake in 383,935 acres of U.S. land as of 2021, which is less than 1% of all foreign-held land.
Low Interest Rates: Japan has maintained a low interest rate environment for an extended period, partly due to the Bank of Japan's monetary policies. This means that the cost of servicing the debt is re.
According to the Bank of Russia's estimate, external debt of the Russian Federation as of March 31, 2024 totaled $304.0 billion, having decreased by $12.8 billion, or by 4.1%, since the end of 2023.
Implications for the Economy: The bond market serves as a barometer for the broader economy. A sustained bond market collapse can signal concerns about economic stability, potentially leading to shifts in government policies and impacting job markets, inflation rates, and interest rates on various financial products.
So, if the bond market declines or crashes, your investment account will likely feel it in some way. This can be especially concerning for investors with portfolios heavily weighted toward bonds, such as those in or near retirement.
Is China dumping the dollar?
China's Central Bank dumped the US dollar in the currency market for three consecutive days in December this month. The Chinese state-run banks sold US dollars in the spot foreign exchange as retaliation to Moody's negative rating on the Yuan.
| Characteristic | National debt in relation to GDP |
|---|---|
| Macao SAR | 0% |
| Brunei Darussalam | 2.06% |
| Kuwait | 3.08% |
| Hong Kong SAR | 4.27% |
China owes the United States $1.3 trillion, which is the most debt out of all the countries that are its debtors. Japan was the primary debt holder until 2008, but now comes in second place, with $1.2 trillion. Other countries with outstanding U.S. debt include Russia, India and South Korea.
Of course, just as with an individual or family, cutting spending and increasing revenue are smart first steps. Beyond that, the government considers things like new taxes, a higher retirement age, removing loopholes from the tax code, and more to reduce annual deficits and the national debt.
Why does China own so much of America's federal debt? America has a current account deficit, mainly due to a trade deficit with China. This means that the American demand for yuan is increasing at a faster rate than the Chinese demand for dollars.
