Paranoia over China's increasing worldwide dominance and rapidly growing economic might comes at a time when the federal government of the United States can't get comfortable with our budget deficit (no matter its percent of GDP) yet continue to sell our bonds into the seemingly insatiable appetite for it amongst the Chinese.
Most in the US view China's rapidly growing manufacturing might and increasing ownership of our public debt not as benefits (in that the former has dramatically lowered our cost of living – keeping domestic inflation in check; and their long-view on the US in financing our national debt works similarly, whilst also lowering our cost to borrow and finance our significant budget deficit); yet these developments are feared as threats.
I disagree. In fact, I believe we have China just where we've been moving (both politically and commercially) to put them in for decades. Going back to Nixon, it was clear that the Chinese, while communist in name, were quite different then their comrades to the north (for which they too held a distrust that rivaled our own...and still do to this day). Nixon understood that the Chinese have been capitalists for thousands of years, and at the core of their Marxist push was a steely-cold and calculating plan; one that recognized no iteration of Jeffersonian democracy would leapfrog the better part of a billion people over the craggy and risk-ridden transition to industrialization with nary a scratch. Anyone who's had the chance to take a gander at the sheer awesome and democratically-impossible scope of the Three Gorge Dam (and the near 1.5 million people it displaced) can sympathize with the fact that sometimes tough and wildly unpopular decisions have paved the way to more than one democracy (or republic as the case may be).
Today's China is, in some respects, less socialistic than much of Western Europe with its moth-eaten social safety-net and seemingly unbridled tendency towards free-market capitalism.
Yet fears of Chinese hegemony is increasingly influencing public opinion in the United States, fears of imminent Chinese dominance that harken back to the 1980's when, prompted by the fear-mongering media, many Americans believed Japan would surely overtake the US economically (then no doubt have their revenge for that whole World War 2 thing!). Japanese xenophobia climaxed with the purchase of the Rockefeller Center and Radio City Music Hall in New York...what was next, The White House!?
Well, not many years would pass when, much like the Japanese economy, the very same company that triumphantly plunked down $900 million to own Rockefeller Center would walk away, selling their ownership for what they paid out of concern that it was a "losing investment" (its value today is in the many billions).
Fast forward to present day and, much like the insatiable appetite the Japanese were reported to have for United States real estate, the Chinese can't seem to get enough of buying up our national debt: one can hardly make it through the day without being warned by the same alarmist media that "the United States is drowning in debt, that the Chinese government is buying it all, ergo, China owns the United States!"
Well just like in the 80's, the media's go it wrong on so many levels! Yet like so many other xenophobia-stuffed lies sold to sloth-minded viewers, they tend to live on way past their expiration date and grow increasingly bloated in their impact. Today proclamations of America's inevitable demise still gets public attention as cheaply as it did 25 years ago, and every decade before then.
As a consequence, a significant percent of America's public today believe we have a dangerous reliance on China, oft citing Chinese and, to a lesser extent Japanese, purchases of America's nearly $16 trillion in our national debt as their chief concern.
But there's one little problem with that conventional wisdom: it's just not true. While yes, the Chinese, Japanese and plenty of other foreigners do own meaningful percentages of US national debt, it's actually Americans themselves who own most it.
Below is a fascinating breakdown of who actually "owns America" (in terms of how much US national debt is owned by foreigners) as of 2007 and, well, it sure isn't the Chinese:
Hong Kong: $121.9 billion (0.9%)
Caribbean banking centers: $148.3 (1%)
Taiwan: $153.4 billion (1.1%)
Brazil: $211.4 billion (1.5%)
Oil exporting countries: $229.8 billion (1.6%)
Mutual funds: $300.5 billion (2%)
Commercial banks: $301.8 billion (2.1%)
State, local and federal retirement funds: $320.9 billion (2.2%)
Money market mutual funds: $337.7 billion (2.4%)
United Kingdom: $346.5 billion (2.4%)
Private pension funds: $504.7 billion (3.5%)
State and local governments: $506.1 billion (3.5%)
Japan: $912.4 billion (6.4%)
U.S. households: $959.4 billion (6.6%)
China: $1.16 trillion (8%)
The U.S. Treasury: $1.63 trillion (11.3%)
Social Security trust fund: $2.67 trillion (19%)
So out of the $15+ trillion in national debt (which is a fraction of America's net worth), America owes foreigners about $5 trillion of it…the other $10+ trillion is owned by Americans.