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> And the reason they hold so many is not as some control play against the US -- its because it was the best way to devalue their currency enough to support exports.

Can you explain how that devalues a currency? Isn't a simpler explanation that the reason they hold so many is because US government bonds were and still are the safest way to invest your money?

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China exports a lot to the US, and exporters get paid in dollars. To use that money in China, they need to exchange it, increasing demand for yuan. There aren't enough imports into China to counterbalance this. Buying treasury bonds instead means they don't need to exchange the money and can keep on exporting. It also happens to be a very safe investment.

You could worry that someday the Chinese might want to cash in on this investment, but increasing US exports to China isn't actually a problem. Increased demand for US exports would improve the US economy.

People like to try to figure out which side is exploiting the other, but both sides are largely getting what they want out of this deal.

To buy US bonds you need dollars to pay for them. So you have to buy dollars, paying with your own currency. Which changes the exchange ratio in favor of dollar by means of the supply/demand law. That's how buying bonds devalues juan.

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