China and Japan Increase Holdings of U.S. Debt to Record High levels
China, the largest foreign buyer of U.S. Treasury debt, increased its holdings by $12.2 billion in November. This represents almost a 1% increase in its total debt holdings to $1.32 trillion, a record level.
The second largest foreign holder of treasury debt is Japan, which increased its holdings by 1% to $1.19 trillion, also a record. Overall, foreign holdings of U.S. treasury bonds increased by 1.1% in November to 5.72 trillion. Some are unsure about the consequences of China and Japan owning such a large amount of U.S. treasuries. However, this huge investment in America ties both countries' fortunes with the success of the U.S. economy.
According to Forbes contributor Kenneth Rapoza, foreign investors owning debt is not a threat to the United States. Rapoza points out that of the $16 trillion in outstanding U.S. debt, most of it is held by large banks here in America: Goldman Sachs, JP Morgan, Citibank, and Bank of America. China holds about 7.5% of U.S. debt. “One of the reasons why China has so much Treasury holdings is because of trade. Companies put money in short term Treasury notes and bills to settle trade payments,” Rapoza asserts.
Forbes also noted that the Pentagon did an assessment on the risks posed by China’s ownership of U.S. treasuries in July and came to the same conclusion: “Attempting to use U.S. Treasury securities as a coercive tool would have limited effect and likely would do more harm to China than to the United States.”