Why does the US owe China so much money?
But the most important reason is that China receives a surplus of U.S. dollars due to the trade imbalance between the two countries, as China exports more to the U.S. than it imports. But, Chinese companies and their workers need to be paid in China's local currency.
From a national perspective, China buys U.S. debt due to its complex financial system. The central bank must purchase U.S. Treasuries and other foreign assets to keep cash inflows from causing inflation. In the case of China, this phenomenon is unusual.
| Country/territory | US foreign-owned debt (January 2023) |
|---|---|
| Japan | $1,104,400,000,000 |
| China | $859,400,000,000 |
| United Kingdom | $668,300,000,000 |
| Belgium | $331,100,000,000 |
One of the main culprits is consistently overspending. When the federal government spends more than its budget, it creates a deficit. In the fiscal year of 2023, it spent about $381 billion more than it collected in revenues. To pay that deficit, the government borrows money.
It's going to put it into bonds of other countries. It will have to buy other currencies in order to invest in those countries' bonds. So US interest rates will no doubt rise as the supply of US Treasury bonds suddenly increases and the dollar will fall as China moves a lot of money out of dollars.
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.
| 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.
Who owns this debt? The public owes 74 percent of the current federal debt. Intragovernmental debt accounts for 26 percent or $5.9 trillion. The public includes foreign investors and foreign governments.
China is one of the United States's largest creditors, owning about $859.4 billion in U.S. debt. 1 However, it does not own the most U.S. debt of any foreign country. Nations borrowing from each other may be as old as the concept of money.
Can the US ever get out of debt?
Under current policy, the United States has about 20 years for corrective action after which no amount of future tax increases or spending cuts could avoid the government defaulting on its debt whether explicitly or implicitly (i.e., debt monetization producing significant inflation).
The US Department of Treasury building seen in March 2023. US government debt is nearing $35 trillion. The high and rising level of US government debt risks driving up borrowing costs around the world and undermining global financial stability, the International Monetary Fund has warned.
A nation saddled with debt will have less to invest in its own future. Rising debt means fewer economic opportunities for Americans. Rising debt reduces business investment and slows economic growth. It also increases expectations of higher rates of inflation and erosion of confidence in the U.S. dollar.
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.
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.
Nations like China typically hold US debt in the form of various US Treasury debt, including bonds and other notes. None of these instruments allow debt holders to simply demand repayment…you get the terms and conditions associated with the bond and there's little flexibility to “calling in all of their debts”.
Altogether, China's gross national debt is over 300 percent of GDP. A high debt burden constrains the government's fiscal firepower, preventing it from unleashing bolder stimulus and weakening its effectiveness when implementing support measures.
Japan has the highest percentage of national debt in the world at 259.43% of its annual GDP.
At the top is Japan, whose national debt has remained above 100% of its GDP for two decades, reaching 255% in 2023. *For the U.S. and Canada, gross debt levels were adjusted to exclude unfunded pension liabilities of government employees' defined-benefit pension plans.
- Somalia.
- South Sudan.
- Sudan.
- Tanzania.
- The Gambia.
- Togo.
- Uganda.
- Zambia.
Does the US owe Britain money?
What countries does the U.S. owe money to in 2021? The United States owes money to many countries, including Japan, mainland China, the U.K., Ireland, Luxembourg, Brazil, Switzerland and Belgium, among others.
The case of debts arising from World War II is somewhat less complicated. At this time only four countries, discussed below, owe the U.S. government debts of any size arising from World War II programs to aid our allies. Other countries have paid their debts in full.
The national debt is the sum of a nation's annual budget deficits, offset by any surpluses. A deficit occurs when the government spends more than it raises in revenue.
The government borrows money to pay obligations by issuing Treasury bonds, notes, bills, and other marketable securities.
Public debt is held by the public: individual investors, institutions, foreign governments. After intragovernmental holdings, the next largest category is national debt held by foreign governments. Of those, Japan has the most, followed by China.
