If China Stops Buying our Debt, Will Calamity Follow? | Brookings (2024)

FAQs

What happens if China stops buying US debt? ›

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

The reality is very different than the rhetoric. 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.

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 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.

Answer and Explanation: It is unlikely that China's economy will collapse if the US stops buying Chinese goods. While the two countries have a great deal of influence over their respective economies, they have more trade partners than each other.

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.

With $1.1 trillion in Treasury holdings, Japan is the largest foreign holder of U.S. debt. Japan surpassed China as the top holder in 2019 as China shed over $250 billion, or 30% of its holdings in four years.

According to the US Treasury, Russian ownership of US Treasuries was $2.1 Billion in Nov 2022.

It began rising at a fast rate in the 1980's and was accelerated through events like the Iraq Wars and the 2008 Great Recession. Most recently, the debt made another big jump thanks to the pandemic with the federal government spending significantly more than it took in to keep the country running.

In the latest reports, Russia National Government Debt reached 281.6 USD bn in Feb 2024. The country's Nominal GDP reached 494.7 USD bn in Mar 2023.

Who owns most of China's debt? ›

[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).

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.

Beijing is buying up gold to diversify its reserve funds and reduce its dependence on the U.S. dollar, long considered the most important currency to hold in reserve. China has been reducing its U.S. Treasury holdings for more than a decade.

Many pundits blame governments whenever economies crash, but the real cause of China's slump is the long period of fast growth that piled up vulnerable and unsustainable debts. The higher they fly, the harder they fall.

According to the US Treasury, Russian ownership of US Treasuries was $2.1 Billion in Nov 2022.