This is the second piece in an occasional series re-examining the economic relationship between the United States and China. Here, we explore Chinese holdings of U.S. debt and explain why these holdings exemplify the Chinese economy’s dependence on the U.S. rather than being a source of leverage.
China needs the U.S. market more than the U.S. needs cheap Chinese goods.
China is a significant holder of U.S. debt, but it is not the largest holder.
China has significantly reduced its holdings of U.S. debt with no perceivable ill effect on the U.S. economy.
As long as the U.S. dollar is the reserve currency and U.S. bonds remain attractive investments, China can do relatively little with its U.S. debt to harm the U.S. economy.
Much has been made of the fact that China has been the largest holder of U.S. debt for most of the last eight years. The latest statistics available from the U.S. Department of the Treasury indicate that China held $1