US total debt is $19.9 trillion. China owns c$1.1 trillion. Nowhere close to being “the largest holder of Treasuries”, not even the largest foreign holder -that would be Japan-, and far from being “a threat”.
In fact, the US and foreign mutual funds would absorb the entire Chinese holdings in three days. China has reduced its holdings by $41.3 billion in 2016, the lowest level since 2010, with no discernible impact on the market and demand for Treasuries.
Here’s the detailed breakdown (source, as of December 31, 2016).
- Social Security (Social Security Trust Fund and Federal Disability Insurance Trust Fund) – $2.801 trillion
- Office of Personnel Management Retirement – $888 billion
- Military Retirement Fund – $670 billion
- Medicare (Federal Hospital Insurance Trust Fund, Federal Supplementary Medical Insurance Trust Fund) – $294 billion
- All Other Retirement Funds – $304 billion
- Cash on Hand to Fund Federal Government Operations – $580 billion. (Source: Treasury Bulletin, Monthly Treasury Statement, Table 6. Schedule D-Investments of Federal Government Accounts in Federal Securities, December 2016)
- Foreign – $6.281 trillion (of which Japan, $1.13 trillion, and China, $1.1 trillion)
- Federal Reserve – $2.463 trillion
- Mutual Funds – $1.379 trillion
- State and Local Government, including their pension funds – $874 billion
- Private Pension Funds – $544 billion
- Banks – $570 billion
- Insurance Companies – $304 billion
- U.S. Savings Bonds – $169 billion
- Other (individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors) – $1.349 trillion. (Sources: Federal Reserve, Factors Affecting Reserve Balance, January 18, 2017. Treasury Bulletin, Ownership of Federal Securities, Table OFS-2, as of June 2016.)
China is NOT the largest holder of US debt, not even by a mile. It is not even the largest foreign holder (read).
Meanwhile, foreign institutions’ holdings of China government bonds fell 1.9bn yuan in January to 421.75bn, according to data from China Central Depository & Clearing Co. The first drop since October 2015. However, foreign investors had increased their stakes in China’s government bonds by 70 percent in 2016, bringing the total to the current 421.7 billion yuan.
Daniel Lacalle is PhD in Economics and author of “Life In The Financial Markets”, “The Energy World Is Flat” (Wiley) and forthcoming “Escape from the Central Bank Trap”.
Graph courtesy Bloomberg. Sources thebalance.com, Bloomberg