China is the world's biggest holder of US sovereign debt. Part of the usefulness of holding US sovereign debt is its perceived reliability. However, despite promises from the US government, US government debt has grown constantly, and earlier this month we saw a US government shutdown during a fierce political debate over the US debt ceiling. Although the US government did not default on its debts, the incident was of great concern to the many countries who own US debt.
China owns at least 1.27 trillion dollars worth of US treasury securities, or government bonds. These are packages of US government debt, which can potentially be sold on to secondary buyers. The real value of the bonds therefore depends on the perceived level of likelihood that the US government will repay their debts.
Another reason why so many countries purchase US dollars is the dollar's status as the preeminent currency for world trade. As the RMB becomes more widely used internationally, China will have less of a need for US dollars, although experts agree that the RMB is many years away from the achieving the same level of international prominence as the US dollar.
So what do experts think are the economic implications of China owning so much US national debt? Will, or should, China's investment in US treasury securities change in the future?
Ni hao, you're listening to People In the Know, bringing you insights into the headlines in China, and around the world, I'm Zheng Chenguang in Beijing.
Nathan Wakelin-King speaks to Professor Jeffrey Frankel, professor of Capital Formation and Growth at Harvard University's Kennedy School of Government, and Dr Jin Keyu, assistant professor in economics at the London School of Economics.