China becomes America's largest foreign creditor

China passed Japan to become the U.S. government's largest foreign creditor in September, the Treasury Department announced this week, reflecting the dramatic expansion of Beijing's economic influence over the American economy.

China's new status — it now owns nearly $1 out of every $10 in U.S. public debt — means Washington will be increasingly forced to rely on Beijing as it seeks to raise funds to cover the cost of a $700 billion bailout. China, in fact, may be the government's largest creditor, period. The Treasury Department does not keep records on domestic bond holders.

"This is a sign of the growing interdependence between the Chinese and U.S. economies, but also a sign of a relationship that is not healthy in the long term," said Eswar Prasad, an economics professor at Cornell University and a senior fellow at the Brookings Institution in Washington.

China's investment in U.S. Treasury bonds surged by $43.6 billion to $585 billion in September, pulling ahead of Japan, which now holds $573.2 billion worth.

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