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

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.