if China decides to sell some of its US debt, especially at a time when the Federal Reserve is no longer buying, the value of the US debt will decrease because China will flood the supply of the market with US debt.
Treasury debt isn't like any other investment vehicle. It is nothing but an asset swap for excess reserves. Those reserves exist to enable purchasing bonds because their owner transacted some business in US dollars, trading real resources for them.
Bonds draw down excess reserves in the banking system by offering a small return, but when they mature they will never pay more than their face value as they are sold at a discount matching their promised return rate. If one buys an existing bond there is no profit to be made above that return rate, so buyers never set the price for them. The seller must decide if it wants to accept less than face value if it wishes to sell a bond before its maturity.
China holds no special ability to demand anything beyond what it has to gain by simply waiting out the maturity of its bond holdings when the face value is returned to them by crediting its reserve account at the Fed.
A bond’s yield moves in the opposite direction of its price. So a lower valuation means higher yield as the US government will have to pay higher interest rate than today’s to compensate for this risk.
"Flooding the market", or anything else that occurs in the secondary market is not something that can impact the Treasury's ability to sell its debt and can only influence the bond market by taking a loss, again having no impact on Treasury.
The Fed is always the gorilla in the room when it comes to setting bond returns, as it shares a balance sheet with Treasury, making its purchases zero-sum. Also, since reserves must be exchanged for bond purchases those reserves must be first spent into existence at the Fed before they are available to purchase anything.
More importantly, because US debt is what I call “return-free risk” assets, do NOT invest in US government bonds in any part of your investment portfolio!
The deficit spending of Congress "funds" bond purchases, not the other way around. It is not subject to the whims of bond vigilantes as stocks are to investors. If you're purchasing Treasury bonds to make a profit, instead of backstopping other investments and providing a bit of a buffer against inflation, you have it mostly wrong to begin with.
