Unlike a loan shark, a holder of government debt can't just ask the debtor to pay up their five year loan yesterday.

Unless the loan shark is the IMF, the ECB, and the EU, in which case it can park (financial) tanks outside the banks of the debtor country and threaten to rain financial death on it.

That's unlikely to happen in China's case - but we're in novel territory politically and economically, so I think it's impossible for anyone to guess how it will play out.

They only do that if the debtor is threatening a default/haircut.

They don't go around demanding that the interest and the principal on a bond due 20 years from now gets paid tomorrow.

Gotcha. Thanks for the reply. Is it likely China would try and do something crazy like that?

They can ask for whatever they want, but they won't get it. (And they won't ask.)

What they can do is start selling the debts they own for cash on the open market.

You understand they use dollars to keep their currency afloat, right? If they sell all their dollars, there will nothing to stabilize their currency.

and that would cause a run from the yuan, right?

I'm not sure - it will, however, make it more expensive for the US to sell new bonds. (Why lend Uncle Sam $100 at a 1% interest rate, when you can buy a piece of paper that says Uncle Sam will pay you $100 next year for $98 from China?)

What can they do? They can sell their US IOUs at a loss.

But they can take their army to a delicate border - say with Pakistan, India, and at the straight, and if they ask North Korea nicely maybe they will be able to get to the SK border, and ask for their money back with the PLA standing by.

A holder of government debt can have much sharper knives than a loan shark.

Confusion between a government holding debt, and a holder of government debt notwithstanding, a state actor can also hijack an airplane and ask for a billion dollars, or they will kill a hostage every 30 minutes.

Or, they can threaten to nuke South Korea if you don't send them food.

As it's not ran by people with the financial and diplomatic acumen of either the Tea Party, or the Kim family, China's not likely to do either.

> A holder of government debt can have much sharper knives than a loan shark.

Actually, the difference you point to is really with a government holder of debt (regardless of whether the debt is government debt), not with a holder of government debt.