II 

111TH CONGRESS 

2D SESSION S. 3240 

To increase transparency regarding debt instruments of the United States 

held by foreign governments, to assess the risks to the United States 

of such holdings, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

APRIL 21, 2010 

Mr. CORNYN (for himself and Mr. KYL) introduced the following bill; which 

was read twice and referred to the Committee on Finance 

A BILL 

To increase transparency regarding debt instruments of the 

United States held by foreign governments, to assess 

the risks to the United States of such holdings, and 

for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Foreign-Held Debt 

5 Transparency and Threat Assessment Act’’. 

6 SEC. 2. FINDINGS. 

7 Congress makes the following findings: 


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1 (1) On March 16, 2006, the United States Sen2 ate debated and then narrowly passed legislation, H. 

3 J. Res. 47 (109th Congress), to increase the statu4 tory limit on the public debt of the United States. 

5 In a statement published in the Congressional 

6 Record, then-Senator Barack Obama opposed the 

7 legislation and stated, ‘‘The fact that we are here 

8 today to debate raising America’s debt limit is a sign 

9 of leadership failure. It is a sign that the U.S. Gov10 ernment can’t pay its own bills. It is a sign that we 

11 now depend on ongoing financial assistance from 

12 foreign countries to finance our Government’s reck13 less fiscal policies.’’. Then-Senator Obama went on 

14 to say that ‘‘Increasing America’s debt weakens us 

15 domestically and internationally. Leadership means 

16 that ‘the buck stops here’. Instead, Washington is 

17 shifting the burden of bad choices today onto the 

18 backs of our children and grandchildren. America 

19 has a debt problem and a failure of leadership. 

20 Americans deserve better.’’. 

21 (2) On February 25, 2010, United States Sec22 retary of State, Hillary Rodham Clinton, urged 

23 members of Congress to address the Federal budget 

24 deficit: ‘‘We have to address this deficit and the debt 

25 of the United States as a matter of national security 


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1 not only as a matter of economics. I do not like to 

2 be in a position where the United States is a debtor 

3 nation to the extent that we are.’’. The Secretary 

4 went on to say that reliance on foreign creditors has 

5 hit the United States ‘‘ability to protect our security, 

6 to manage difficult problems and to show the leader7 ship that we deserve.’’. 

8 (3) The Department of the Treasury borrows 

9 from the private economy by selling securities, in10 cluding Treasury bills, notes, and bonds, in order to 

11 finance the Federal budget deficit. This additional 

12 borrowing to finance the deficit adds to the Federal 

13 debt. 

14 (4) The Federal debt stands at more than 

15 $12,863,000,000,000. 

16 (5) According to a report issued by the Depart17 ment of the Treasury on April 15, 2010, entitled 

18 ‘‘Major Foreign Holders of Treasury Securities’’, 

19 foreign holdings of United States Treasury securities 

20 stood at more than $3,750,000,000,000 at the end 

21 of February 2010. China was the single largest hold22 er with holdings of more than $877,000,000,000. 

23 (6) Despite efforts by the Department of the 

24 Treasury to identify the nationality of the ultimate 

25 holders of United States securities, including United 


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1 States Treasury securities, data pertaining to for2 eign holders of these securities may still fail to re3 flect the true nationality of the foreign entities in4 volved. For example, another Department of the 

5 Treasury report, issued on February 26, 2010, enti6 tled ‘‘Preliminary Report on Foreign Holdings of 

7 U.S. Securities At End-June 2009’’, assigns nearly 

8 $650,000,000,000 worth of United States securities 

9 to the Cayman Islands, a British overseas territory 

10 with a population of only 55,000 people. The Cay11 man Islands is not itself a large investor in United 

12 States securities; rather, it is a major international 

13 financial center and is routinely used as a place to 

14 invest funds from elsewhere. 

15 (7) Despite efforts by the Department of the 

16 Treasury to provide more timely information, the 

17 data that the Department releases is typically out18 dated. For example, the latest figures in the Feb19 ruary 26, 2010, report on all United States securi20 ties were 8 months old. 

21 (8) On February 25, 2010, Simon Johnson, an 

22 economics professor at the Massachusetts Institute 

23 of Technology and a former chief economist for the 

24 International Monetary Fund, testified before the 

25 U.S.-China Economic and Security Review CommisVerDate Nov 24 2008 23:58 Apr 21, 2010 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S3240.IS S3240

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1 sion that United States Treasury data understate 

2 Chinese holdings of United States Government debt 

3 and ‘‘do not reveal the ultimate country of owner4 ship when [debt] instruments are held through an 

5 intermediary in another jurisdiction.’’. He stated 

6 that ‘‘a great deal’’ of the United Kingdom’s in7 crease in United States Treasury securities last year 

8 ‘‘may be due to China placing offshore dollars in 

9 London-based banks’’, which are then used to pur10 chase United States Treasury securities. 

11 (9) On February 25, 2010, Dr. Eswar Prasad, 

12 an economist at Cornell University, testified before 

13 the U.S.-China Economic and Security Review Com14 mission that the amount of United States debt held 

15 by the People’s Republic of China is much higher 

16 than United States Treasury data indicate. In his 

17 revised testimony, Dr. Prasad went on to explain 

18 that China is probably currently holding more than 

19 $1,300,000,000,000 in United States Treasury secu20 rities. 

21 (10) According to a February 3, 2009, report 

22 by the Heritage Foundation, entitled ‘‘Chinese For23 eign Investment: Insist on Transparency’’, the State 

24 Administration of Foreign Exchange (SAFE) of the 

25 People’s Republic of China, the government body 


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1 that purchases foreign securities, is the single larg2 est global investor and the largest foreign investor in 

3 the United States. 

4 (11) According to the February 3, 2009, report, 

5 although the People’s Republic of China has em6 braced the Generally Accepted Principles and Prac7 tices for Sovereign Wealth guided by the Inter8 national Monetary Fund, China’s actual outward-in9 vestment practices are far from transparent. 

10 (12) On March 13, 2009, Chinese Premier Wen 

11 Jiabao demanded that the Obama Administration 

12 ‘‘guarantee the safety’’ of American bonds, stating, 

13 ‘‘We have lent a huge amount of money to the 

14 U.S.’’. 

15 (13) According to the Department of Defense’s 

16 2009 report to Congress entitled, ‘‘Military Power of 

17 the People’s Republic of China’’, the leaders and 

18 strategists of the People’s Liberation Army (PLA) 

19 often consider China’s strategy in terms of building 

20 ‘‘comprehensive national power’’. The report con21 tends that China’s growing regional and global eco22 nomic stature will result in ‘‘a more active external 

23 posture in which it [China] demonstrates a willing24 ness to assert its interests . . .’’. 


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1 (14) Additionally, the Department of Defense 

2 report states that, ‘‘China’s sustained economic 

3 growth . . . has enabled China to focus greater re4 sources on building, equipping, and training the 

5 PLA without overwhelming the economy.’’. Though 

6 the PLA’s official budget has more than doubled 

7 from $27,900,000,000 in 2000 to $60,100,000,000 

8 in 2008, the report states that the official budget 

9 ‘‘does not capture the totality of military expendi10 ture.’’. The report maintains that, ‘‘Continued eco11 nomic development, central to China’s emergence as 

12 a regional and global power, remains the foundation 

13 of the [Chinese Communist] Party’s popular legit14 imacy and underwrites its military power.’’. 

15 (15) On January 29, 2010, the Department of 

16 Defense notified Congress of its intent to sell various 

17 defensive arms, valued at $6,400,000,000, under the 

18 Foreign Military Sales program to Taiwan in ac19 cordance with the Taiwan Relations Act (22 U.S.C. 

20 3301 et seq.). 

21 (16) On February 2, 2010, at a semiweekly 

22 media briefing, Ma Zhaoxu, spokesman of China’s 

23 foreign ministry, criticized these pending arms sales 

24 to Taiwan, threatening sanctions against United 

25 States companies involved in the sales. 


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1 (17) PLA officials have publicized the potential 

2 use of United States Treasury securities as a means 

3 of influencing United States policy and deterring 

4 specific United States actions. On February 8, 2010, 

5 retired PLA Major General Luo Yuan, from the 

6 PLA Academy of Military Science, stated in an 

7 interview with state-controlled media that China 

8 could attack the United States ‘‘by oblique means 

9 and stealthy feints’’, in retaliation for United States 

10 arms sales to Taiwan. He went on to say, ‘‘Our re11 taliation should not be restricted to merely military 

12 matters, and we should adopt a strategic package of 

13 counterpunches covering politics, military affairs, di14 plomacy and economics to treat both the symptoms 

15 and root cause of this disease. For example, we 

16 could sanction them using economic means, such as 

17 dumping some U.S. government bonds.’’. 

18 (18) The PLA has also referenced the concept 

19 of nonmilitary aspects of deterrence in written state20 ments. As a PLA textbook, ‘‘The Science of Military 

21 Strategy’’, observes, there are various forms of de22 terrence, including economic and technological, all of 

23 which need to be developed and consciously strength24 ened in order to maximize effect. These forms will 

25 only work ‘‘with the determination and volition of 


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1 employment of the force, and by dangling the word 

2 of deterrence over the rival’s head in case of neces3 sity.’’. 

4 SEC. 3. DEFINITIONS. 

5 In this Act: 

6 (1) APPROPRIATE CONGRESSIONAL COMMIT7 TEES.—The term ‘‘appropriate congressional com8 mittees’’ means the following: 

9 (A) The Committee on Armed Services, the 

10 Committee on Foreign Relations, the Com11 mittee on Finance, and the Committee on the 

12 Budget of the Senate. 

13 (B) The Committee on Armed Services, 

14 the Committee on Foreign Affairs, the Com15 mittee on Ways and Means, and the Committee 

16 on the Budget of the House of Representatives. 

17 (2) DEBT INSTRUMENTS OF THE UNITED

18 STATES.—The term ‘‘debt instruments of the United 

19 States’’ means all bills, notes, and bonds issued or 

20 guaranteed by the United States or by an entity of 

21 the United States Government, including any Gov22 ernment-sponsored enterprise. 

23 SEC. 4. SENSE OF CONGRESS. 

24 It is the sense of Congress that— 


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1 (1) the growing Federal debt of the United 

2 States has the potential to jeopardize the national 

3 security and economic stability of the United States; 

4 (2) the increasing dependence of the United 

5 States on foreign creditors has the potential to make 

6 the United States vulnerable to undue influence by 

7 certain foreign creditors in national security and 

8 economic policymaking; 

9 (3) the People’s Republic of China is the largest 

10 foreign creditor of the United States, in terms of its 

11 overall holdings of debt instruments of the United 

12 States; 

13 (4) the current level of transparency in the 

14 scope and extent of foreign holdings of debt instru15 ments of the United States is inadequate and needs 

16 to be improved, particularly regarding the holdings 

17 of the People’s Republic of China; 

18 (5) through the People’s Republic of China’s 

19 large holdings of debt instruments of the United 

20 States, China has become a super creditor of the 

21 United States; 

22 (6) under certain circumstances, the holdings of 

23 the People’s Republic of China could give China a 

24 tool with which China can try to manipulate the do25 mestic and foreign policymaking of the United 


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1 States, including the United States relationship with 

2 Taiwan; 

3 (7) under certain circumstances, if the People’s 

4 Republic of China were to be displeased with a given 

5 United States policy or action, China could attempt 

6 to destabilize the United States economy by rapidly 

7 divesting large portions of China’s holdings of debt 

8 instruments of the United States; and 

9 (8) the People’s Republic of China’s expansive 

10 holdings of such debt instruments of the United 

11 States could potentially pose a direct threat to the 

12 United States economy and to United States na13 tional security. This potential threat is a significant 

14 issue that warrants further analysis and evaluation. 

15 SEC. 5. QUARTERLY REPORT ON RISKS POSED BY FOREIGN 

16 HOLDINGS OF DEBT INSTRUMENTS OF THE 

17 UNITED STATES. 

18 (a) QUARTERLY REPORT.—Not later than March 31, 

19 June 30, September 30, and December 31 of each year, 

20 the President shall submit to the appropriate congres21 sional committees a report on the risks posed by foreign 

22 holdings of debt instruments of the United States, in both 

23 classified and unclassified form. 

24 (b) MATTERS TO BE INCLUDED.—Each report sub25 mitted under this section shall include the following: 


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1 (1) The most recent data available on foreign 

2 holdings of debt instruments of the United States, 

3 which data shall not be older than the date that is 

4 7 months preceding the date of the report. 

5 (2) The country of domicile of all foreign credi6 tors who hold debt instruments of the United States. 

7 (3) The total amount of debt instruments of the 

8 United States that are held by the foreign creditors, 

9 broken out by the creditors’ country of domicile and 

10 by public, quasi-public, and private creditors. 

11 (4) For each foreign country listed in para12 graph (3)— 

13 (A) an analysis of the country’s purpose in 

14 holding debt instruments of the United States 

15 and long-term intentions with regard to such 

16 debt instruments; 

17 (B) an analysis of the current and foresee18 able risks to the long-term national security and 

19 economic stability of the United States posed by 

20 each country’s holdings of debt instruments of 

21 the United States; and 

22 (C) a specific determination of whether the 

23 level of risk identified under subparagraph (B) 

24 is acceptable or unacceptable. 


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1 (c) PUBLIC AVAILABILITY.—The President shall 

2 make each report required by subsection (a) available, in 

3 its unclassified form, to the public by posting it on the 

4 Internet in a conspicuous manner and location. 

5 SEC. 6. ANNUAL REPORT ON RISKS POSED BY THE FED6 ERAL DEBT OF THE UNITED STATES. 

7 (a) IN GENERAL.—Not later than December 31 of 

8 each year, the Comptroller General of the United States 

9 shall submit to the appropriate congressional committees 

10 a report on the risks to the United States posed by the 

11 Federal debt of the United States. 

12 (b) CONTENT OF REPORT.—Each report submitted 

13 under this section shall include the following: 

14 (1) An analysis of the current and foreseeable 

15 risks to the long-term national security and eco16 nomic stability of the United States posed by the 

17 Federal debt of the United States. 

18 (2) A specific determination of whether the lev19 els of risk identified under paragraph (1) are sus20 tainable. 

21 (3) If the determination under paragraph (2) is 

22 that the levels of risk are unsustainable, specific rec23 ommendations for reducing the levels of risk to sus24 tainable levels, in a manner that results in a reduc25 tion in Federal spending. 


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1 SEC. 7. CORRECTIVE ACTION TO ADDRESS UNACCEPTABLE 

2 AND UNSUSTAINABLE RISKS TO UNITED 

3 STATES NATIONAL SECURITY AND ECONOMIC 

4 STABILITY. 

5 In any case in which the President determines under 

6 section 5(b)(4)(C) that a foreign country’s holdings of 

7 debt instruments of the United States pose an unaccept8 able risk to the long-term national security or economic 

9 stability of the United States, or the Comptroller General 

10 of the United States makes a determination under section 

11 6(b)(3), the President shall, within 30 days of the deter12 mination— 

13 (1) formulate a plan of action to reduce the risk 

14 level to an acceptable and sustainable level, in a 

15 manner that results in a reduction in Federal spend16 ing; 

17 (2) submit to the appropriate congressional 

18 committees a report on the plan of action that in19 cludes a time line for the implementation of the plan 

20 and recommendations for any legislative action that 

21 would be required to fully implement the plan; and 

22 (3) move expeditiously to implement the plan in 

23 order to protect the long-term national security and 

24 economic stability of the United States. 

Æ 


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