China remained the top holder of American debt in 2010, according to data released Wednesday by the U.S. Treasury Department.

The Asian powerhouse took the top spot despite the fact that it actually reduced its Treasury holdings in December by 0.4 percent to $892 billion.

That is down from the $895 in Treasuries China held at the end of last year.

Overall, however, foreign holdings of U.S. Treasuries rose 0.6 percent in December to $4.37 trillion.

Japan, the second largest holder of American debt, upped its holdings during the month 0.7 percent to $883.6 billion.

Overall, foreign governments cut their investments in Treasuries, but private investors increased their purchases.

Britain was one of the few governments that really ramped up its activity. During the month, it increased its Treasury holdings 5.8 percent to $541.3 billion.

There is speculation, however, that China may be using British banks to purchase more U.S. Treasuries under cover.

“Some of China’s Treasury purchases may also be showing up in UK-sourced data that has been consistently strong, but nonetheless, it looks like China was more actively trying to dodge the Treasury sell-off than most,” Alan Ruskin, strategist at Deutsche Bank, told The Financial Times.

There is also some concern that China may be purchasing U.S. debt in other secret ways as well, through partially state-owned firms that are controlled by the Chinese government along with other business holdings that may not outwardly appear to be Chinese-owned.

Some experts believe that China may actually hold over $1 trillion in U.S. debt. And it is not only an economic issue, but one of national security.

“We cannot sustain this level of deficit financing and debt without losing our influence, without being constrained in the tough decisions we have to make,” Secretary of State Hillary Clinton said last year.
“We have to address this deficit and the debt of the United States as a matter of national security not only as a matter of economics.”

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