January 19th, 2011
03:34 AM GMT
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Despite what talk radio and late night comedians may say, China does not own the U.S. Treasury Department. Numbers show that 75% of Uncle Sam’s growing debt is in the hands of U.S. interests.

Of the international lenders, China is owed the most, just under $900 billion. But with America’s debt approaching $14 trillion, that’s not even 7% in Chinese hands. Of course, if China were to suddenly call in its notes, it would cause chaos to the U.S. economy.

But Christina Larson, a China analyst with the New America Foundation, says Beijing and the rest of the world still consider taking on debt from the United States a safe bet.

"China needs a place to park its capital and there’s no place that's as stable, easy to purchase and feel safe in as the United States."

Yes, Uncle Sam pays its interest, even if it has to borrow to do so. And, of course, with our stores filled with many goods made in China, the trade deficit has become a political hot potato. Yet, while China is the largest exporter in the world, the CIA Factbook reveals Germany is a close second, with the United States the No. 3 exporter, less than $200 billion behind China.

The outsourcing of manufacturing to China gets a lot of play in the United States, where fewer things are stamped “Made in America.” Experts say many of those jobs will never come back.

One nagging issue is the notion that China keeps its currency low to make its goods considerably cheaper to U.S. consumers. It’s a valid point that Beijing addresses every so often. President Barack Obama will, no doubt, push Chinese President Hu to do more on that front.

Hu also has domestic conundrum to deal with, analyst Christina Larson said. China has "to absorb millions of people every year into the labor market to prevent the dreaded social unrest," which will always be the top priority of the Chinese government, she said.

"They have an oversupply of people at this moment who've graduated from colleges and aren’t able to find high skilled jobs. An interesting fact that between now and 2030, there’s expected to be about 350 million people who move from the countryside to cities in China. That’s more than the entire population of the entire United States."

With the U.S. a much smaller market, in terms of population, China must turn inward to create a better consumer climate so Chinese people with extra money can buy the things they make, Larson says.

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soundoff (15 Responses)
  1. Clinton Weir

    "if China were to suddenly call in its notes"

    This isn't something China could actually *do*. The US debt that China holds is term – the US does not have to redeem it for cash any sooner no matter what the Chinese say or do. On the other hand, China *could* sell their treasury bills on the free market.

    An increased supply of US debt in the market could push up the rate of interest the government needs to pay to borrow money, which could theoretically force the US government to take austerity measures (cut services or raise taxes) something we probably need to do anyway...

    January 19, 2011 at 4:45 am |
  2. Edward Phillips

    How is the Yuan created? Is it create by private bankers like in the US or is their fiat currency control by the communist government without interest? Why do we pay interest for something created out of thin air?
    I know why because Americans have been dumbed down the world bankers to keep the population in the dark while the control things. Is it a Skull conspiracy or is it ?????

    January 19, 2011 at 4:48 am |
  3. Manuel Vilhena

    Very Interesting. 7% of the USA debt is a huge ammount of money.

    January 19, 2011 at 9:22 am |
  4. jak

    Isn't the unaccounted for portion of the debt from the Treasury just printing more money? It would be more interesting to see a complete breakdown of the debt.

    January 20, 2011 at 3:07 am |
  5. Jorge Curi

    I believe, above all, that the USA's ruling period is about to end. The new order will be countries becoming blocks, and in this field, Europe is ahead of all countries and existing blocks. So, it is not a matter of one currency or another, it will be a matter of countries bonding and forming strong blocks. The USA will have to enter a block and respectfully listen to and acknowledge what other countries will have to say, otherwise, the USA will lose even more ground not just to China, but to other emerging and not emerging countries.

    January 20, 2011 at 3:07 am |
  6. cactus

    Who wrote this story? Do they really know what they are talking about. Very in teresting that it comes just as we are having to raise the debt ceiling. I suspect this is government propaganda meant to fool the fools that believe everything the government says. Smart people believe very little that the government says, for good reason, because most of it is lies.

    January 20, 2011 at 4:15 am |
  7. Steve Thompson

    Mr. Costantini either has his facts wrong or he and CNN are intentionally distorting reality for their own nefarious gain. Reading the current news is as far as one need look for proof:

    From “What is Plan B if China dumps its U.S. debt?” by Reuters, dated Jan. 18, 2011 (http://www.reuters.com/article/idUSTRE70H5NX20110118):
    —“China is officially the United States' biggest foreign creditor, with roughly $900 billion in Treasury holdings—or over $1 trillion with Hong Kong's holdings included.”

    From “China Lowers Holdings of US Debt in November” by CNBC, dated Jan. 18, 2011 (http://www.cnbc.com/id/41135884):
    —“Overall, foreign holdings of Treasury securities rose 0.9 percent to $4.35 trillion.”
    —“Of the total foreign holdings, $2.82 trillion or about two-thirds, is held by foreign governments and central banks.”

    One trillion dollars divided by $4.35 trillion and $2.82 trillion means China owns 22.98% of all Foreign holdings and 35.46% of all Foreign Government holdings. In other words, China has the U.S.’ financial testicles in their hands, and Chinese President Hu Jintao is here squeezing them hard (China's President: Dump Dollar for Yuan as Global Currency, http://www.moneynews.com/StreetTalk/ChinasPresidentDumpDollarforYuanasGlobalCurrency/2011/01/18/id/383097; China Backs Europe, Euro for Investment, Central Bank Deputy Governor Says, http://www.bloomberg.com/news/2011-01-07/china-will-put-currency-reserves-into-europe-euro-central-bank-s-yi-says.html; Bank of China Begins Offering Yuan Deposits, Currency Exchange in New York, http://www.bloomberg.com/news/2011-01-11/bank-of-china-begins-offering-yuan-service-to-customers-of-u-s-branches.html; China Lowers Holdings of US Debt in November, http://www.cnbc.com/id/41135884; Chen Says U.S.-China Trade Gap Not Caused by Currency, http://www.bloomberg.com/news/2011-01-19/chen-says-u-s-trade-deficit-with-china-not-caused-by-currency.html; National Debt Tops $14 Trillion, http://www.cbsnews.com/8301-503544_162-20027090-503544.html; U.S. in Debt Crisis Without Spending Cuts, Pimco's Kashkari Says, http://www.bloomberg.com/news/2011-01-18/pimco-s-kashkari-warns-u-s-may-face-debt-crisis-without-reduced-spending.html); and Pension pledges have left UK and US 'insolvent', http://www.telegraph.co.uk/finance/financetopics/davos/8255745/Pension-pledges-have-left-UK-and-US-insolvent.html.

    To Mr. Costantini, I recommend you fully research the domestic hands holding U.S. debt. I can’t find the number but it’s the Fed, by several orders of magnitude over the second largest holder. This should be your story: when a private organization responsible for regulating our economy is buying the vast majority of the debt being created by the Treasury the ‘story’ is the exact opposite of what you erroneously implied: a house of worthless paper money that will go up in flames and smoke once the inflation match fully starts burning (Fear `Mindless' U.S. Deficit Spending, Pimco's Gross Says, http://www.bloomberg.com/news/2011-01-05/pimco-s-gross-says-investors-should-fear-mindless-u-s-deficit-spending.html; Greenspan Warns of Risks From U.S. Debt, http://online.wsj.com/article/SB10001424052748704739504576067832461529192.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews; Deficit reduction critical says IMF's Lipsky, http://www.reuters.com/article/idUSTRE70716M20110108; and S&P, Moody's Warn On U.S. Credit Rating, http://online.wsj.com/article/SB10001424052748703583404576079311379009904.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews).

    As a side note to CNN editors and management: recommend you read all wires. Obviously you won’t run stories from wires you don’t subscribe to, but at least provide them and require your writers to conduct full due diligence (research) before publishing.

    To all Americans, I recommend you start buying—NOW—numismatic coins, bullion and yuan (RMB) for wealth protection. You have at the most 2-3 years, according to Alan Greenspan (Greenspan Warns of Risks From U.S. Debt, http://online.wsj.com/article/SB10001424052748704739504576067832461529192.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews).

    January 20, 2011 at 4:44 am |
  8. Martin

    Laughable spin.

    How much of that debt is owned by the Federal Reserve? Check it out; it's growing substantially every month.

    The fed prints money to 'lend' to the governmet with interest payable.

    January 20, 2011 at 5:46 am |
  9. HKD

    I am a reader from China. The concern on the other side of the table is: out of 7% US debt owned by China or U$900billions is huge amount of money. In theory China will eventually get its loan back and exchange it back to Chinese Yuan, just like a bank. So the math goes:
    Today Chinese Yuan exchange rate is 6.5 vs $1 xU$900billion=5850billions Yuen (principle of today)
    The future US wants China to appreciate its currency 20% which means the investment wlll =4680billions Yuen

    5850-4680=1170billion Yuen divided by 20% increase in exchange rate =U$240billions!!! This is the loss for China and the gain for US.

    What's bad investment it will be! My government must be dumb as donkey being sweet talked into this by America politicians. Pushing China Yuan to appreciate has nothing to do with moving jobs back to USA, it will never happen. The real motivation is to ripe other nations off!

    January 20, 2011 at 6:41 am |
  10. William

    The Federal Reserve "owns" four to five trillion of the fourteen trillion dollar debt.

    January 20, 2011 at 4:02 pm |
  11. William

    Thank you for your contribution HKD! I had not heard that perspective before but it makes perfect economic sense.

    January 20, 2011 at 4:04 pm |
  12. Steve Thompson

    (NOTE TO EDITOR: Please delete first attempt: your system deleted embedded hyperlinks. Thanks)

    The Chinese could dispose of their debt at any time. How they dispose tells the U.S. and the world everything.

    If they selloff in an orderly fashion as they push a world currency (World currency unit intended to rival U.S. dollar for supremacy, http://www.financialpost.com/story.html?id=3086360) Americans will have a relatively long, orderly period to adjust to Chinese food and a significantly lower standard of living, or 2-3 years (Greenspan Warns of Risks From U.S. Debt, http://online.wsj.com/article/SB10001424052748704739504576067832461529192.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews).

    However, the Chinese know they have our proverbial financial jewels in the palm of their hand and can squeeze whenever they like (Mullen: National Debt is a Security Threat, http://www.executivegov.com/2010/08/mullen-national-debt-is-a-security-threat/). And don’t think they won’t do it because of economics (Chinese Tiger ate US Dove for lunch, http://www.nypost.com/p/news/national/chinese_tiger_ate_us_dove_for_lunch_7Ro396zi1n6vZrCwLsp05M).

    The Chinese are strategists, and thanks to nearly $3 trillion in foreign exchange reserves they are now in the financial big league. President Hu’s favorite word is ‘harmony.’ Read these two stories, in order, and I think you will get a good understanding of China’s strategy with respect to the financial world and the United States: Hu Jintao (http://topics.nytimes.com/top/reference/timestopics/people/h/hu_jintao/index.html?inline=nyt-per) and Hu calls currency system 'product of the past' (http://www.breitbart.com/article.php?id=CNG.9964072691a62252d0a98b0308fb8063.281&show_article=1).

    Folks, we need to stop arguing over semantics (tactical issues) and look at the big picture here before it’s too late: we must reduce our Federal budget by at least 40 percent status quo (expenses vs. receipts in current law and policy) in the next year or two. And that’s just to stop accumulating more national debt (balanced budget)!

    Offering up $2.5 trillion in budget cuts over 10 years sounds like real progress, but in reality it just another political spin campaign and only slows the rate of debt accumulation by 20 percent (maximum) (Republicans set down marker on spending: $2.5 trillion in cuts, http://thehill.com/blogs/on-the-money/budget/139089-republicans-set-down-marker-on-spending-25-trillion-cut-in-10-years).

    Without a 40 percent or greater reduction in budget we will pass the point of no return to becoming the largest financial banana republic in the history of the world (S&P, Moody's Warn On U.S. Credit Rating, http://online.wsj.com/article/SB10001424052748703583404576079311379009904.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews).

    January 21, 2011 at 3:36 pm |
  13. ike

    As I understand it Japan owns more US debt than China. is that true? What is the total debt of the US by countries and how much do we owe.

    February 14, 2011 at 1:17 pm |
  14. the irony

    Lemme see here. Kill off all the intelligentsia because they are trouble makers. Then spend a generation building a following generation of intelligentsia who will not have jobs that make use of their skills. Sounds like a recipe for disaster. In less than 20 years China is going to Balkanize.

    April 26, 2011 at 10:38 pm |
  15. hamzahhatawa

    like to start new business here http://www.pc-mediabox.com

    November 18, 2011 at 2:41 am |

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