China will not stop buying US Bonds though, the reason is that the RMB (Chinese dollar) is not public traded; and they want to keep it that way. The reason is to keep the Chinese dollar artificially undervalue to give the exporter competitive edge. One US Dollar buys 6-7 Chinese dollars of goods; the more undervalue they keep the Chinese currency the more one US dollar can buy. On the flip side, the US dollar is weakening, this causes problem for the Chinese as well, bc now One US Dollar can buy less number of Chinese goods.
Since RMB is not publicly traded, just like Japan (which is publicly traded) the Chinese gov needs to find a way to sell large amount of the Chinese dollar somehow, supply and demand; the more you sell, the cheaper the stuff gets bc the demand would no longer be there when sufficient amount of supply is there.
The way JPN do it is by selling the japanese dollar on the free stock market so Honda and Toyota can get the competitive edge by undervaluing the Japanese dollar.
The way Chinese do it, is by buying bonds all over teh world, USA being the biggest bond issuer; so China buys from USA and became the biggest debt holder.
Got it guys?
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