How Much U.S. Debt Does China Really Own?

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How Much U.S. Debt Does China Really Own?

Xi Jinping and Barack Obama
Chinese President Xi Jinping shakes hands with US President Barack Obama. Wang Zhou - Pool/Getty Images

The U.S. debt was more than $14.3 trillion during the so-called debt crisis of 2011 when the level of borrowing reached its statutory limit and the president warned of a potential default if the cap wasn't raised.

[  5 Presidents Who Raised the Debt Ceiling ]

So who owns all that U.S. debt?

About 32 cents of every dollar of the U.S. debt, or $4.6 trillion, is owned by the federal government in trust funds, for Social Security and other programs such as retirement accounts, according to the U.S. Department of Treasury.

China and U.S. Debt

The largest portion of U.S. debt, 68 cents for every dollar or about $10 trillion, is owned by individual investors, corporations, state and local governments and, yes, even foreign governments such as China that hold Treasury bills, notes, and bonds.

Foreign governments hold about 46% of all U.S. debt held by the public, more than $4.5 trillion. According to the Treasury, the largest foreign holder of U.S. debt is China, which owns more than $1.24 trillion in bills, notes, and bonds or about 30% of the over $4 trillion in Treasury bills, notes, and bonds held by foreign countries. 

In total, China owns about 10% of publicly held U.S. debt. Of all the holders of U.S. debt China is the third-largest, behind only the Social Security Trust Fund's holdings of nearly $3 trillion and the Federal Reserve's nearly $2 trillion holdings in Treasury investments, purchased as part of its quantitative easing program to boost the economy.

The current $1.24 trillion in U.S. debt is actually slightly less than the record $1.317 trillion held by China in 2013. Economists suggest the decrease was due to China’s decision to reduce its U.S. holdings in order to increase the value of its own currency.

Why Foreign Countries Buy U.S. Debt

The fact that the U.S. government has never defaulted on its debt leads investors – including foreign governments – to consider U.S. Treasury bills, notes, and bonds to be one of the safest investments in the world.

China is especially attracted to U.S. bills, notes, and bonds due to our annual $350 billion trade deficit we have with them. U.S. trade partner nations like China are anxious to lend the U.S. money so that we will continue to buy the goods and services they export. Indeed, foreign investment in the U.S. debt is one factor that helped us survive the recession.

Criticism of China Owning U.S. Debt

To put its ownership of U.S. debt in perspective,  China's holding of $1.24 trillion is even larger than the amount owned by American households. U.S. citizens hold only about $959 billion in U.S. debt, according to the Federal Reserve.

Other large foreign holders of U.S. debt include Japan, which owns $912 billion; the United Kingdom, which owns $347 billion; Brazil, which holds $211 billion; Taiwan, which holds $153 billion; and Hong Kong, which owns $122 billion.

[  Debt Ceiling History ]

Some Republicans have expressed concern over the amount of U.S. debt owned by China. Republican U.S. Rep. Michele Bachmann, a 2012 presidential hopeful, joked that when it came to the debt "Hu's your daddy," a reference to Chinese President Hu Jintao.

Despite such joking, the truth is the bulk of the $14.3 trillion U.S. debt - $9.8 trillion in all - is owned by the American people and its government.

That's the good news.

The bad news?

That's still a lot of IOUs.

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Murse, Tom. "How Much U.S. Debt Does China Really Own?" ThoughtCo, Feb. 28, 2017, thoughtco.com/how-much-debt-does-china-own-3321769. Murse, Tom. (2017, February 28). How Much U.S. Debt Does China Really Own? Retrieved from https://www.thoughtco.com/how-much-debt-does-china-own-3321769 Murse, Tom. "How Much U.S. Debt Does China Really Own?" ThoughtCo. https://www.thoughtco.com/how-much-debt-does-china-own-3321769 (accessed January 17, 2018).