In it, but not of it. TPM DC
That's because the debt to ourselves, over $9.747 trillion, is eight times the amount we owe China. The Chinese actually own about 8% of American debt, compared to the nearly 68% of the debt held domestically. Not to say that the $1.16 trillion we owe China isn't real money. To be sure, the overall amount the U.S. is in debt to other countries is large: we owe $4.595 trillion of the overall $14.343 trillion to foreign states.
China is actually the third biggest individual creditor to the U.S., behind the Social Security Trust Fund and the $2.67 trillion the government owes it, and the $1.63 trillion in Treasuries the Federal Reserve has purchased, many through a process called "quantitative easing," used to increase the money supply in the financial system and subsequently stimulate the economy. Business Insider did a great rundown of the top holders of our debt, and right behind China is U.S. households with $959.4 billion in holdings. And so on.
This is important because it's not only a narrative that's been pushed for political gain but has manifested into policy ideas. In February, Sen. Pat Toomey introduced a largely rejected plan to "Pay China First," which would entail literally sending large checks to foreign governments and large financial institutions at the expense of domestic responsibilities in the event that the government failed to raise the debt limit.
And of course, it's been a political message for some time now. Rep. Michele Bachmann (R-MN), before she officially declared for president but out courting conservative support none the less, made a joke at CPAC about the Chinese government holding American debt, saying with all that debt, "Hu's your daddy," referring to Chinese President Hu Jintao. China gets singled out in television ads railing against the debt. Or it's the entire focus of an ad, Chinese Army included.
Casting the Chinese government as the economic bogeyman is unlikely to stop as long as it's an effective tactic. But the debt to China, while a significant portion, is much more talked about than the numbers numbers bear out. Certainly much more than 8%.