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Source: Heritage Foundation
The Chinese do buy a lot of U.S. government bonds. The PRC may hold about 10 percent of the U.S. national debt, though their share has been falling. Unfortunately, this is because our debt has grown so much that Chinese purchases canít keep up. If we donít like China owning so much of our national debt, the answer is simple: We shouldnít run such big deficits. Then we wouldnít need to sell our debt to China or to anyone else.
Some people worry that China can sell off our Treasury bonds and hurt our economy. They canít. All sellers need buyers. If Beijing sells and there is strong demand, China will simply be replaced by other buyers. If Beijing canít find a buyer, it will have to cut the price itís asking for. Then the U.S. government would be able to buy back its own bonds for less money than they are worth. That would cut Americaís debt at Chinaís expense.
So Chinese purchases of federal debt donít hurt us. Unfortunately, these purchases donít help us much either. By buying our bonds, the PRC makes it easier for the U.S. to run large budget deficits, which damages the private sector and reduces long-term economic growth. That isnít Chinaís fault, itís ours.
Thereís your bottom line. We need to get our own house in order. If we do, we can much more easily cope with the genuine problems that we have with China. If we donít, weíll hurt ourselves far more than the Chinese ever could. The American future doesnít rest with China. It rests where it always has: with us.