Demystifying China and U.S. debt
January 18th, 2011
08:38 PM ET

Demystifying China and U.S. debt

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 (168 Responses)
  1. shamel

    I'm doing the same, people would say this is a hard article to elaborate.

    February 25, 2011 at 11:56 am | Report abuse | Reply
  2. Clay

    Chinese leaders were doing very careful governing. They don't want to give any freedom to acheive the leader goals. It has become like a business for them (Capitalism). They also wanted to become third largest country in the world by annexing Taiwan ( Nazism) , so that they can over take USA by Land area. I am not sure whether annexing Hong Hong is profitable for Chinese as they have a large amount of debt as well as they have a lot of freedom unlike boneless mainland chinese. I think the chinese leaders forgot communism.

    April 17, 2011 at 9:32 pm | Report abuse | Reply
  3. remained

    in what way would it do china any good to take america....are you people that uneducated and struck with your own fear to realize that? In fact...how many of you know someone living in China right now? do you know how people there view us from their perspective? Why would a country that has dealt with more civil war than any civilization want to start something that big? Communism does not = global domination. Are we americans just lemmings to what conspiracies we have?

    August 11, 2011 at 9:42 pm | Report abuse | Reply
  4. John Smith

    "One nagging issue is the notion that China keeps its currency low to make its goods considerably cheaper to U.S. consumers." Oposite fiat currency and fractional reserve banking.

    August 23, 2011 at 12:47 am | Report abuse | Reply
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