Some specialists say that China’s investment in American debt is now so vast that it would be impossible for Beijing to unload its Treasury securities without flooding the market and driving down their price.
Still, it is rare for any world leader to raise questions about the safety of United States Treasuries. Both the White House and Treasury Department issued reassuring statements.Robert Gibbs, the White House press secretary, said, “There’s no safer investment in the world than in the United States.” Foreign investors would be reassured if Congress adopted the president’s budget plan, he said, because it would put “us on that path to fiscal responsibility.”
On the other hand China might decide not to buy the $800 billion that will be floated to pay for the stimulus.
If that happens, the only alternative is to print money, which will cause inflation, which, although this is hard to grasp at first, will devalue the US dollar, which will devalue the treasuries that China already owns, and that will potentially cause everyone else to lose faith. If China loses faith, it could start a chain reaction, just like the one we're going through internally now.
[Update 2015 05 25 - You can see the official list of foreign treasury holdings. As of today China has been trending down slightly.]
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