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 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.
“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.
“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 moneyon your mortgage.
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
United States Treasury securities, also called Treasuries or Treasurys, are government debt instruments issued by the United States Department of the Treasury to finance government spending, in addition to taxation.
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.
Since the U.S. dollar has a variable exchange rate, however, any sale by any nation holding huge U.S. debt or dollar reserves will trigger the adjustment of the trade balance at the international level. The offloaded U.S. reserves by China will either end up with another nation or will return back to the U.S.
(Bloomberg) -- China sold a record amount of Treasury and US agency bonds in the first quarter, highlighting the Asian nation's move to diversify away from American assets as trade tensions persist.
That raises an important question: who is going to keep funding the federal government's borrowing spree? China offloaded another $22.7 billion in U.S. Treasuries in February, according to the latest data from the Federal Reserve. That dropped its total holdings to $775 billion.
Beijing, vigilant in the protection of its overseas assets, has slashed its holdings of US Treasury bills by 25 per cent since early 2021 to the tune of US$280 billion. Its position hit a 14-year low of US$769.6 billion in October 2023, a decline commonly attributed to a conscious effort to diversify its holdings.
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.
How bad is it? China's debt is more than 250 percent of GDP, higher than the United States. It remains lower than Japan, the world's most indebted leading economy, but some experts say the concern is that China's debt has surged at the sort of pace that usually leads to a financial bust and economic slump.
"China owns $870 billion in U.S. Treasuries that finance our debt. And they either own or have a huge portion of the Chicago Stock Exchange, AMC movie theaters, General Electric's appliance division, General Motors, and Smithfield Foods just to name a few."
How much money do we owe? 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.
The international buying appetite has been falling over the past 10 years (dropping from 40% to the current 30%). The major international owners of US debt include Japan ($1.1T), China, UK, Belgium, Switzerland, Cayman Islands and smaller amounts from the rest of the world.
China has offloaded USD 22.7 billion US treasury bills recently over concerns over security and a further delay to expected interest rate cuts by the American Federal Reserve, amidst its intensified strategic rivalry with Washington.
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).
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).
[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).
In total, other territories hold about $7.4 trillion in U.S. debt. Japan owns the most at $1.1 trillion, followed by China, with $859 billion, and the United Kingdom at $668 billion. In isolation, this $7.4 trillion amount is a lot, said Scott Morris, a senior fellow at the Center for Global Development.
Introduction: My name is Dan Stracke, I am a homely, gleaming, glamorous, inquisitive, homely, gorgeous, light person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
