How much of the USA is owned by China? The answer to that question seems to be a constant source of controversy among America’s political leaders and media commentators. The real question is: How much of the total U.S. debt does the U.S. federal government owe to Chinese lenders? The quick answer is that as of January 2018, the Chinese owned $1.17 trillion of U.S. debt or about 19% of the total $6.26 trillion in Treasury bills, notes, and bonds held by foreign countries. That sounds like a lot of money—because it is—but it is actually a little less than the $1.24 trillion China-owned in 2011. Understanding the actual extent and impact of America’s debt to China requires a closer look at these massive amounts of money.

Breaking Down the US Debt and Who Owns It Wang Zhou - Pool/Getty Images In 2011, the total U.S. debt stood at $14.3 trillion. By June 2017, the debt had grown to $19.8 trillion and was projected to top $20 trillion by January 2018. In addition, many economists contend that the reported U.S. debt should include at least another $120 trillion in unfunded future liabilities—money the government does not currently have but is legally obligated to pay people in the future. The government itself actually holds just under one-third, about $5 trillion, of the $19.8 trillion government debt in the form of trust funds dedicated to legislatively-mandated programs like Social Security, Medicare, and Medicaid and veterans’ benefits. Yes, this means that the government actually borrows money from itself to fund these and other “entitlement” programs. Financing for these huge annual IOUs comes from the Department of the Treasury and the Federal Reserve. Most of the rest of the U.S. debt is owned by individual investors, corporations and other public entities—including foreign creditors like the Chinese government. Among all of those foreign creditors to which America owes money, China led the way at $1.17 trillion, followed by Japan, at $1.07 trillion as of January 2018. While Japan’s 4.8% ownership of the U.S. debt is only slightly less than China’s 5.3%, the Japanese-owned debt is rarely depicted in a negative light, as is China’s. This is partly because Japan is seen as a much “friendlier” nation and because Japan’s economy has been growing more slowly than China’s over the last several years.

Why China Loves to Own US Debt Chinese lenders snap up so much of the U.S. debt for one basic economic reason: protecting its “dollar-pegged” yuan. Ever since the establishment of the Bretton Woods System in 1944, the value of China’s currency, the yuan, has been connected or “pegged” to the value of the U.S. dollar. This helps China hold down the cost of its exported goods, which tends to make China, like any nation, a stronger performer in international trade. With the U.S. dollar considered one of the safest and most stable currencies in the world, dollar-pegging helps the Chinese government maintain the stability and value of the yuan. In May 2018, one Chinese yuan was worth about $0.16 U.S. dollar. With most forms of U.S. debt, like Treasury bills, redeemable in U.S. dollars, worldwide trust in the dollar and the U.S. economy, in general, remains China’s main safeguard for the yuan.