China No Longer Top Foreign Owner of U.S. Debt

By Terence P. Jeffrey | April 16, 2015 | 4:48 PM EDT

(AP Photo)

( - By the end of February, according to data released yesterday by the U.S. Treasury, entities in Mainland China had relinquished their position as the top owners of U.S. government debt.

Japan took the lead over Mainland China as the top foreign owner of U.S. government debt even though entities in both countries decreased their holdings of U.S. debt in February.

At the end of January, entities in Mainland China had held $1239.1 billion in U.S. government debt and entities in Japan had held $1238.6 billion. During February, the Japanese decreased their holdings by $14.2 billion, ending the month with $1,224.4 billion in U.S. government debt.

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But the Chinese decreased their holdings of U.S. debt by $15.4 billion, ending the month owning $1223.7 billion.

Thus, at the end of February, the Japanese edged out the Chinese $1,224.4 billion to $1223.7 billion in ownership of U.S. government debt.

Mainland Chinese ownership of U.S. government debt has been generally declining since it peaked in November 2013 at $1,316.70 billion. Japanese ownership of U.S. government debt hit its most recent peak in November 2014, when it hit $1,241.50 billion.

In a paper published last month, the Congressional Research Service said: “China’s purchases of U.S. government debt help keep U.S. interest rates low.”

“However,” said this CRS report, “over the past few years, Chinese officials have expressed concern over the 'safety' of their large holdings of U.S. debt. They worry that growing U.S. government debt and expansive monetary policies will eventually spark inflation in the United States, resulting in a sharp depreciation of the dollar. This would diminish the value of China’s dollar asset holdings. Some Chinese officials have called for replacing the dollar as the world’s major reserve currency with some other currency arrangement, such as through the International Monetary Fund’s special drawing rights system, although many economists question whether this would be a feasible alternative in the short run.”

“Some analysts have raised concerns that China’s large holdings of U.S. debt securities could give China leverage over U.S. foreign policy, including trade policy,” said the CRS report. “They argue, for example, that China might attempt to sell (or threaten to sell) a large share of its U.S. debt securities as punishment over a policy dispute, which could damage the U.S. economy."

"Others counter that China’s holdings of U.S. debt give it very little practical leverage over the United States," said the CRS report. "They argue that, given China’s economic dependency on a stable and growing U.S. economy, and its substantial holdings of U.S. securities, any attempt to try to sell a large share of those holdings would likely damage both the U.S. and Chinese economies. Such a move could also cause the U.S. dollar to sharply depreciate against global currencies, which could reduce the value of China’s remaining holdings of U.S. dollar assets.”

At the end of December 2000, Mainland China owned 60.3 billion in U.S. government debt and Japan owned 317.7 billion.

Since then China’s ownership of U.S. government debt has increased 20-fold. The Japanese have increased theirs almost 4-fold.