Today, China is the second largest holder of US debt.  Japan holds more US paper than any other country (Seeking Alpha.com 2-19-10).

Many people think China has stopped buying US T-Bills.  Actually, they have done pretty much what the rest of the world market has done.  They have flocked to the US ‘safety net’ since the Euro has been in trouble the past few months.

China’s economy is growing at a faster pace than ours but is still far smaller.  The US GDP is right at about $14 Trillion which is about the same at the entire EEU (European Economic Union) depending what source you use.  China’s is about the same as Japan (again pending your source) at about $5 Trillion.  Germany is next at about $3.5 Trillion.  An argument can be made that both Japan and Germany are stronger economies than China since China has far superior natural resources while Germany and Japan must import almost all natural resources (comparatively speaking).

Much of China’s growth in the past 30 years has been fueled by internal energy sources.  In fact, until the early 90’s, China was a net exporter of energy and even now provides the vast majority of it own power.  That, however is changing and it is predicted China will need energy at a level almost 4 times their own level of production in the next ten years.  The U.S., Japan, and Germany, on the other hand, have built their economies using huge percentages of imported energy supplies.

China is not our biggest trading partner.  That is Canada at about $430 Billion a year in trade.  China is a close second at about $360 Billion annually.  The noticable difference is in the balance.  We import about 10% more from Canada than we export to Canada (about $205 B. out and $225 B. in).  With China we import over five times as much as we export to China (about $70 B. out and about $300 B. in).

Why am I posting this?  I read quite a few other blogs where I see a common theme of people’s fears about China, often driven by a lack of knowledge about China and its Economy.  Many people feel that China now holds us hostage because they hold so much US debt.  Though they hold considerable US debt and though they ship far more to us than we do to them, they are just as dependent upon us as we are on them.  The fact that we  buy about as much Chinese product (as a percentage of their total exports) as they hold of our debt (as a percentage of the total debt) means we have about as much control over China’s economy as they have control over our economy.  Like it or not, both countries need each other and, today, neither has a stronghold on the other.

If you disagree, please let me know and give me some sources.  Thanks.

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