Can China Destabilize US Government Debt? The Biggest Threat Comes from within

Judith Arnal

Global Policy, 2025, vol. 16, issue 2, 341-347

Abstract: China is the second‐largest foreign holder of US government debt, after Japan. As of May 2024, China‐based investors held $768.3 billion worth of US government debt. In recent years, however, Chinese investors have been reducing their holdings of US government debt. Despite the large figure, Chinese holdings represent only 9.6% of total foreign holdings, and less than 3% of total US public debt held by the public. This significantly reduces China's potential destabilizing power, especially since Chinese investors cannot entirely do without US government debt, widely used as collateral in financial transactions. However, this does not mean that the US is free from financial tensions. Surprisingly, these tensions would not be inflicted by any geopolitical adversary but rather by the US' own economic policies. Poor fiscal governance, combined with a high public debt ratio, large public deficits projected for the coming years, an economic strategy reliant on expansionary fiscal policies, and trade policies centered on tariffs, risks increasing the US' cost of borrowing in the short term. If the United States continues down this path of fiscal imbalances, a fiscal crisis could arise in the medium term, with significant implications for the international financial system. When it comes to financial stability in the United States, the biggest threat comes from within.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/1758-5899.13488

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:glopol:v:16:y:2025:i:2:p:341-347

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1758-5880

Access Statistics for this article

Global Policy is currently edited by David Held, Patrick Dunleavy and Eva-Maria Nag

More articles in Global Policy from London School of Economics and Political Science Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().