Despite the recent steep decline in the exchange value of the dollar, the U.S. still runs a substantial current account deficit with China. When Chinese citizens sell goods and services to American citizens, rather than accepting U.S. goods and services as payment, Chinese citizens have been purchasing American assets instead, and in particular, U.S. Treasury securities. While foreign ownership of such debt has been increasing rapidly, Chinese accumulation of U.S. government debt has raised some concerns that the U.S. is at risk to the Chinese “dumping” all of these securities on the open market – thereby depressing federal debt prices and putting upward pressure on U.S. interest rates.

Though the dumping scenario is unlikely (see here for commentary on why), another reason not to be alarmed by Chinese holdings of U.S. treasury securities is that while their holdings have increased by over $300 billion since 2000, their holdings still only account for 17 percent of the total debt held by foreign entities. However, foreign entities hold in total only $2.3 trillion of the roughly $9 trillion in total US debt outstanding. The rest of the federal debt is held by the American public and the federal government itself. The Chinese hold only 4.3 percent of the total federal debt outstanding. Is this enough to be considered a gun to the head of American policymakers?

Data courtesy of US Treasury

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