So should Americans be concerned that China has started dumping some of its Treasury holdings?
After all, it raises serious questions about whether China will keep lending Washington money to help finance the federal deficit in the future.
But right now, China is selling because it's in dire need of cash. Recently, it unleashed multiple moves to support its markets and prevent its currency from a freefall, while at the same time trying to stimulate the economy.
China yanks record sum from war chest
China owned $1.3 trillion of U.S. Treasuries as of June, making it the biggest holder of U.S. debt.
But China's foreign-exchange reserves plunged by a record $94 billion in August, according to the country's central bank, leaving it with a war chest of $3.6 trillion. Analysts say it's very safe to believe a big chunk of that decline occurred due to a reduction in U.S. Treasury holdings.
The selling and the potential that China will not be buying U.S. debt in the near future raises questions on its potential to increase America's borrowing costs.
Some of this might already be happening, at least at a small scale. When stock markets are turbulent, investors usually rush to the safety of U.S. Treasurys and yields fall. However, despite August's extreme stock volatility, rates on Treasurys actually rose slightly in late August.
Part of that move is likely due to Wall Street betting the Federal Reserve may raise interest rates next week. But market participants also suspect the unusual action in the bond market was driven by China dumping Treasuries.
Related: China is the scariest threat to stocks since 2009
China is raising lots of cash
This time, Beijing is cutting its Treasury holdings out of a weakened position as it tries to stave off more declines in its currency. China is also propping up its stock market, which lost half its value in the span of just a few months this summer.
"Capital outflows have skyrocketed in China and the yuan is under intense selling pressure. The only thing they could do is sell Treasuries to buy their own currency," said Walter Zimmerman, chief technical analyst at United-ICAP.
Related: China has spent $236 billion on its stock market bailout
China isn't trying to sink the U.S. economy
There have long been concerns that China could sink the American economy by unloading its gigantic holdings of Treasuries, sending borrowing costs skyrocketing.
Thankfully, those doomsday fears don't appear to be at play here yet.
"If China's U.S. Treasury stock is a nuclear bomb, moderate sales to offset selling pressure on the yuan are unlikely to set off an explosion," Michael McDonough, chief economist at Bloomberg Intelligence, wrote in a recent report.
But moves could raise borrowing costs here
Still, China's sales could make Treasury yields higher than they would normally be. That's of concern because Treasury rates are used as a benchmark that set the cost of borrowing for items like credit cards and mortgages.
While it's "not the end of the world," SkyBridge Capital senior portfolio manager Troy Gayeski said higher yields could lead to a "slowdown in the housing recovery."
What's key is how much cash China ultimately needs to raise to defend its currency and stock market. No one, not even China, knows that figure.
Related: Loud chorus of voices tell Fed: 'Don't do it'
China may go on a U.S. debt diet
So far, the American bond market seems to be taking the China move in stride.
The yield on the 10-year Treasury note is currently sitting at 2.22%, about unchanged from a month ago.
Demand for U.S. debt is healthy now especially when compared to the ultra-low, or even negative rates in other economic powerhouses like Germany and Japan.
Policymakers in Washington should hope that trend continues. Now that China's economy is in disarray, America might not be able to count on its No. 1 lender to gobble up U.S. debt like in the past.
"China's surplus is slowing. That gives them less firepower to accumulate Treasuries," said Thomas Urano, managing director at Sage Advisory.
Related: The stock market is in 'all or nothing' mode
Related: Goldman Sachs isn't worried about China
Related: Hundreds arrested as Beijing launches stock market crackdown
CNNMoney (New York) September 11, 2015: 9:29 AM ET
It's no secret that China is the largest holder of U.S. debt. So should Americans be concerned that China has started dumping some of its Treasury holdings
Will China Dump U.S. Debt? | TIME.com
Americans have about Chinas rising economic power concerns its immense holdings of U.S. government debt. Will China ever really dump U.S. debt?
Petraeus: Don't freak out over China dumping U.S. debt ...
Saddled with student debt, Millennials want to foot the bill for their kids
Analysis: What is Plan B if China dumps its U.S. debt ...
Analysis: What is Plan B if China dumps its U.S. debt? the idea that China would suddenly sell its U.S. debt holdings is almost unimaginable to some.
China is dumping U.S. debt - CNN Philippines
New York (CNN Money) It's no secret that China is the largest holder of U.S. debt. So should Americans be concerned that China has started dumping some of its
China is dumping U.S. debt @ Forex Factory
Related: China is the scariest threat to stocks since 2009 China is raising lots of cash This time, Beijing is cutting its Treasury holdings out of a weakened
The Real Reason Russia and China Are Dumping U.S. Debt
China and Russia have slowly come to realize that by buying U.S. debt, they are unwittingly financing their own military encirclement. They want that to end
Why China Won't Dump U.S. Debt - Investment U
Why China Won't Dump U.S. Debt . by David Fessler, But what are China's options if it wants to sell some of its U.S. debt to diversify its holdings?
China is dumping U.S. debt | Money - WTAE Home
So should Americans be concerned that China has started dumping some of its Treasury holdings? After all, it raises serious questions about whether China will keep
(CNN) China is dumping U.S. debt | Western PA ...
New York (CNN Money) Its no secret that China is the largest holder of U.S. debt. So should Americans be concerned that China has started dumping
