How Much US Debt Does China Own? (Pennies)

In September two thousand eight, China became America's biggest foreign lender, with six hundred and eighteen billion dollars of its debt. At the end of July twenty twenty-six, the US Treasury's own count put China at six hundred and eighteen billion dollars again. Meanwhile, the debt itself has grown to almost forty trillion. So how much US debt does China own? On the official count, about a cent and a half of every dollar America owes.

That's not the picture most people carry around. China owns America's debt, the story goes, so Beijing is America's banker, and if it ever dumps its Treasuries, interest rates explode and the economy goes down with them. It's not a silly fear, and for most of the decade after two thousand eight, China really was the biggest foreign holder of that debt. But China's pile is now less than half of what it held at its peak in twenty thirteen, and the smallest since August two thousand eight. And while the old banker was stepping back, someone new was stepping in. By the end of June, one crypto company held about as much US government debt as the United Arab Emirates.

This matters now because America's debt passed forty trillion dollars in August, and the obvious question is who's lending it the money. If you think one foreign government holds the leash, you'll spend your attention on Beijing. If most of the debt is owed at home, the people to watch are the Federal Reserve, the government's own trust funds, and the funds that hold Americans' savings. So we'll take it in four questions. How big was China's slice at its peak? Who holds the rest today? Could China still do real damage by selling? And who are the new buyers coming in from crypto? There's also a hole in our own headline number. Before the end, you'll see the US Treasury admit it in writing.

First question: how big was China's slice at its peak? If you believe China is America's banker, you have real numbers on your side. When China passed Japan in September two thousand eight, the margin was less than a billion dollars, but China then held the top spot among foreign holders for all but nine months until the middle of twenty nineteen. At its peak, in November twenty thirteen, China held about one point three trillion dollars of Treasuries. That was more than seven and a half cents of every dollar the US government owed, and almost a quarter of everything foreigners held. Seven and a half cents isn't control. But at that moment, no foreign lender held a bigger slice.

The second half of the case is about prices, and it's the part you can't wave away. When a big holder sells government bonds, their price falls and their yield rises, and the yield is roughly the interest rate America pays on new borrowing. Two economists studied foreign governments and central banks from nineteen ninety-nine to twenty eighteen, and estimated what a hundred-billion-dollar sale by those official holders does. Their answer, published in twenty twenty-four, is that five-year and ten-year yields move by about one full percentage point within a month. A full point is not a rounding error. So if selling moves prices, and China was the biggest foreign holder, why isn't that the end of the argument?

The believer also has an exhibit from this year. In February, Bloomberg reported, citing people familiar with the matter, that Chinese regulators had advised financial institutions to limit their purchases of US Treasuries. The next month, China's reported holdings fell by about forty-one billion dollars. Over the following months the ten-year yield climbed, from about four point one percent in February to almost five percent in September. Put those side by side and you'd call it a smoking gun.

Now look at what happened after the peak. China's reported holdings didn't fall off a cliff. They slid, with ups and downs, over twelve years, by about seven hundred billion dollars in total, which is more than half the pile. Part of that slide is falling bond prices rather than selling, because Treasury counts long-term bonds at market value. Still, Bloomberg's own strategists wrote this February that China's holdings had been declining for more than a decade without causing a bear market in bonds or the dollar, meaning a long slide in their prices. On the official count, the exit people feared has been happening, slowly, for twelve years. The crash hasn't.

Why would China pull back at all? Bloomberg's report gave the regulators' worry as risk: large holdings of US government debt may expose Chinese banks to sharp swings. Brad Setser, at the Council on Foreign Relations, has spent years reading China's reserves out of these tables. His reading is that China has cut the share it keeps in long-term Treasuries, while adding short-term bills and keeping a sizeable portfolio of bonds from US mortgage agencies. In twenty twenty-three he put it bluntly in a headline: China isn't shifting away from the dollar or dollar bonds. It looks less like a run, and more like a reshuffle.

Second question: who holds the rest today? To answer it, you need the whole pie, not just China's slice. At the end of July twenty twenty-six, the US government owed about thirty-nine point eight trillion dollars. Every foreign holder put together, governments and private investors alike, held about twenty-three cents of every dollar. On the official count, Japan held a bit under three cents, the United Kingdom two and a half, and China a cent and a half. The UK's figure includes bonds that London custodians hold for owners elsewhere, and that's a clue we'll need later. That leaves about seventy-seven cents of every dollar held inside the United States.

The first block is the strangest. About nineteen cents of every dollar is money the government owes to its own accounts, such as the trust funds behind Social Security, which hold their surplus in interest-bearing Treasury securities. That block alone is about twelve and a half times China's pile. Social Security's trust funds on their own held about two and a half trillion dollars at the end of twenty twenty-five, close to four times what China held at the time. On the official count, America owes Social Security nearly four times what it owes China.

The next block belongs to the Federal Reserve, America's central bank. At the end of July it held about four and a half trillion dollars of Treasuries, around eleven cents of every dollar of debt, and about seven times what China held that month. So what do the trust funds and the Fed hold together? Roughly thirty-one cents of every dollar sits with the government's own accounts and its own central bank. All foreign holders combined have less than that. On the official count, China's slice is about a twentieth of those thirty-one cents.

That leaves the biggest block, roughly forty-six cents of every dollar, held by American investors and everyone else the official tables don't single out. Federal Reserve figures from the middle of this year show who some of them are. Money market funds, which people and companies use to park cash, held about three point three trillion dollars of Treasuries, around five times China's pile. If your cash sits in one of those funds, you may well be lending to the US government yourself. US banks, mutual funds, and state and local governments each held more than China too. In twenty thirteen, foreigners held almost half of the debt that isn't owed to the government's own accounts. This July, it was under three in ten. The new debt was mostly bought at home.

Third question: could China still do real damage by selling? That's the believer's strongest point, and the same two economists traced what happens after the first jump. In their working paper, the effect peaks within a month, is about half as big after six months, and is still around half a point on the ten-year yield after a year, though they warn that the longer-run effects are not estimated precisely. They also write that because the market has grown, a hundred-billion-dollar sale likely moves prices less in recent years than their estimate. So if you fear a sudden sale by China, you're not wrong: it could hurt, and the hurt wouldn't vanish overnight. But every bond China sells is a bond someone else buys, and America owes the new owner exactly the same. It could mean months of higher rates. It cannot call in the debt.

You've already lived through a version of this test. In March twenty twenty, when Treasury yields jumped, foreign official holders' Treasuries fell by about a hundred and forty-seven billion dollars in a single month. The same researchers say their findings suggest those official sales played a critical role in that jump. And China's own holdings? They fell by only about eleven billion. Yields started falling on the nineteenth of March, days after the Fed announced it would buy at least five hundred billion dollars of Treasuries. Between the eleventh of March and the eighth of April, the Fed's Treasury holdings rose by about one point one trillion dollars. The Fed said it was buying to support the smooth functioning of the Treasury market. But in four weeks, it bought more Treasuries than China officially held.

Washington has asked itself this question too. In twenty twelve, when China held well over a trillion dollars of Treasuries, Congress had the Pentagon report on the national security risks of that debt. As quoted by the Congressional Research Service, the report found that using Treasuries as a coercive tool would have limited effect, and likely would do more harm to China than to the United States. That's fourteen years old, and it's the US government grading its own risk, so you should treat it as one view, not a verdict. Its bottom line was blunt. In the research service's words, the threat is not credible.

Fourth question: who are the new buyers coming in from crypto? A stablecoin is a token meant to stay worth one dollar, and the company behind it holds reserves to back the coins. One issuer, Tether, keeps about six in ten dollars of its reserves in Treasury bills, the government's shortest IOUs, due on average within three months. On the thirtieth of June twenty twenty-six, its reserves report, checked by an outside firm, listed almost a hundred and fifteen billion dollars of them. Treasury's table for that same month put the United Arab Emirates at about the same figure. China still held five and a half times as much. So on that day, one crypto company held about as much US government debt as the Emirates.

This isn't just one company's choice, because American law now points the same way. The GENIUS Act, signed in July twenty twenty-five, requires payment stablecoins to be backed at least one to one by reserves. The allowed reserves include cash and bank deposits, along with Treasury bills, notes or bonds that have ninety-three days or less left to run. The law doesn't force anyone to hold Treasuries, and it takes effect by January twenty twenty-seven at the latest. Before it passed, a presentation to Treasury's borrowing advisers called the proposed reserve rules an additional and growing source of demand for Treasuries. The law makes reserves compulsory. Treasuries are on the list.

How big could this get? A projection by the bank Standard Chartered, shown in that April twenty twenty-five presentation, put stablecoins at about two trillion dollars by twenty twenty-eight. The same deck turned that into roughly a trillion dollars of Treasury bills held by stablecoin issuers. That's a bank's projection, not Treasury's, and one page of the deck even says twenty thirty instead. The committee itself debated the sharper question. Would this be new demand for US debt, or just money moved out of banks and money market funds? The big bond dealers Treasury consults called the space something to monitor. Either way, the lender people worry about is shrinking, and a new kind of buyer has walked in from crypto.

Now the problem we promised, because the cent and a half has a hole in it. Every month the US Treasury publishes these country figures with a warning in its own words: the data cannot attribute holdings of US securities with complete accuracy. If a foreign buyer keeps its bonds with a custodian in a third country, the table won't show who really owns them. So where could the missing owners be? Look at Belgium, with about four hundred and seventy billion dollars of Treasuries on the table, and Luxembourg with about four hundred and forty. Analysts read much of Belgium's line as Euroclear, a custodian based there. And within four months of China's twenty thirteen peak, Belgium's line nearly doubled. The official count has a blind spot. Treasury says so.

So let's give China every benefit of the doubt, using Setser's methods. His older method simply added all of Belgium to China, which takes China to about two point seven cents of every dollar. His newer illustration credits China with three in ten of everything held in Belgium, Luxembourg, Britain and France, and that gives about three point three cents. Bloomberg reported his estimate this February that China's true holdings exceed a trillion dollars, which is at least two and a half cents. These counts give China the benefit of the doubt, and Japan and others use the same custodians. On the newer count, China would pass Japan's official share. Even the generous count leaves China near three cents. The Fed alone holds eleven.

There are two more things we can't wave away. China owns more of America than Treasuries: in twenty twenty-three Setser put its reported US assets at about one point eight to one point nine trillion dollars, counting agency bonds and stocks. Those aren't part of what the US government owes, but they're real exposure. And this year's exhibit, with China's line falling while yields rose? From February to July, China's line fell about eleven percent, and all foreign holdings together fell about two and a half percent. And from twenty thirteen to twenty sixteen, China's line fell while yields fell too. The numbers run both ways. We can't tell you China's pullback caused this year's rise, and we can't tell you it didn't.

On the official count, China holds about a cent and a half of every dollar America owes, down from more than seven and a half cents in twenty thirteen. Credit it with a generous share of Europe's custodians, and it's still around three cents. About seventy-seven cents is held inside the United States, by the government's own trust funds, the Federal Reserve, and American funds, banks and other investors. A sudden Chinese sale could still push yields up: by the best estimate, a hundred-billion-dollar sale by official holders moves them about a point within a month, and about half that six months on. That's a real risk. It's months of higher rates, not a banker calling in a loan.

What changes for you is where you look. The next time someone tells you China owns America's debt, ask who holds the other ninety-eight and a half cents on the official count. Most of it is held inside the United States, by American funds and banks, the government's own accounts and its central bank. The live question isn't what Beijing does with its official cent and a half, but who keeps buying the new debt, and part of that answer is now a crypto company. Treasury's own advisers left one question open, so we'll hand it to you. Is stablecoin money new demand for America's debt, or the same dollars moved out of banks? And if you want to know where those bank dollars come from in the first place, our video, Do Banks Create Money?, is the one to watch next.