China Presses US To End Government Shutdown & Avoid Debt Default
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China, the world’s largest holder of U.S. foreign debt, has called on U.S. politicians to end their debt ceiling standoff ahead of the October 17th deadline, warning that a possible U.S. default would have huge global ramifications and severely affect “the safety of Chinese investments” in the country.
China, the world’s largest holder of U.S. foreign debt, has called on U.S. politicians to end their debt ceiling standoff ahead of the October 17th deadline, warning that a possible U.S. default would have huge global ramifications and severely affect “the safety of Chinese investments” in the country.
On Monday, China’s Vice Foreign Minister, Zhu Guangyao, issued his government’s first official comment on the U.S. shutdown, highlighting that as the world’s two largest economies, both countries were “inseparable” in the global market.
“The executive branch of the US government has to take decisive and credible steps to avoid a default on its Treasury bonds,” said Zhu, as cited by the BBC. “It is important for the U.S. economy as well as the global economy.”
[quote]“We ask that the United States earnestly takes steps to resolve in a timely way before 17 October the political [issues] around the debt ceiling and prevent a US debt default to ensure safety of Chinese investments in the United States and the global economic recovery. This is the United States’ responsibility,” he added.[/quote]Referring to a similar Washington impasse in 2011 that led to the humiliating downgrading of America’s credit rating, Zhu further said: “We hope the United States fully understands the lessons of history.”
“The U.S. needs to consider the global impact,” and the Obama administration and Congress “should accelerate discussions,” he added.
According to U.S. Treasury data, China held more than $1.28 trillion in U.S. Treasuries in July 2013, though the true figure could well be higher as China also invests through intermediaries.
Zhu admitted that the U.S. government shutdown had greatly concerned Chinese officials and “because of this, we are naturally paying attention to the looming financial deadlock in the U.S..”
[quote]”The U.S. is the world’s biggest economy and a major country issuing reserve currency,” Zhu said. “The clocking is ticking…[and] the U.S. is clearly aware of China’s concerns about the stalemate in Washington.”[/quote]Related: US Cancels EU Free Trade Talks Due To Government Shutdown
Related: US Government Shutdown – 1 Million Out Of Work, Economic Cost: $300 Million A Day
Nevertheless in recent years, China has moved to diversify its holdings away from U.S. government debt, both to seek higher returns for its cash and to reduce risk. As of June, about 35 percent of the foreign-exchange funds held by China’s State Administration of Foreign Exchange were in U.S. government debt, according to a Wall Street Journal analysis, compared with 45 percent in June 2010.
Daniel Rosen, founding partner of the research firm Rhodium Group, told The Guardian that the political infighting in Washington was likely to have an immense impact on future Sino-U.S. financial relations.
[quote]“I believe that in the final analysis the U.S. is going to pay its debts and is not going to default on its obligations,” he said. But “even assuming that case, it is politically untenable for the government of China to be in a position, whether frequently or occasionally, where the life savings of the country are going to eroded by the political shenanigans of another country.”[/quote]“For the moment they (China) are trapped and they have to deal with the portfolio they have,” Rosen added.
Related: Are Sino-US Ties Still The World’s Most Influential Relationship?
Related: Sino-American Power Play: Why China Has to Buy US Debt
Related: China is Sick of US Hollow Promises and Reckless Government: Stephen S. Roach
