Every time I hear a politician from either party blather on about how we have to “borrow money from China” for any deficit spending, or suggest that we are somehow at the mercy of the Chinese because they own so much American debt, I cringe. I cringe both because it isn’t true and because it is classic fear-mongering (precisely because it isn’t true). Daniel Blumenthal debunks this claim in Foreign Policy:
In fact, China is more like a depositor. It deposits money in U.S. Treasurys because its economy does not allow investors to put money elsewhere. There is nothing else it can do with its surpluses unless it changes its financial system radically (see above). It makes a pittance on its deposits. If the United States starts to bring down its debts and deficits, China will have even fewer options. China is desperate for U.S. investment, U.S. Treasurys, and the U.S. market. The balance of leverage leans toward the United States.
Blumenthal is also correct when he points out that we have far more to fear from a China in decline than a China that is growing richer.