China ridicules US debt politics

2011-08-03 09:03

Beijing - China warned on Wednesday that tortured efforts to raise the US limit on borrowing had failed to defuse Washington's "debt bomb", and signalled it would further diversify its holdings away from the dollar.

After months of bitter negotiations with his Republican rivals, US President Barack Obama finally signed an emergency bill on Tuesday that averted what would have been a disastrous debt default for the world's biggest economy.

But in a blistering commentary, China's official Xinhua news agency ridiculed the US political process and warned that the deal had done nothing to change the country's addiction to borrowing.

"The months-long tug of war between Democrats and Republicans... failed to defuse Washington's debt bomb for good, only delaying an immediate detonation by making the fuse an inch longer," the commentary said.

It described the negotiations between the Republicans and Democrats as a "madcap farce of brinkmanship", and lectured US politicians to take more responsible measures to fix their country's economic problems.

In the first official reaction from a Chinese government body, China's central bank delivered a more measured statement and welcomed the deal.

Global effects

But it nevertheless said it would continue to diversify its foreign currency investments.

"China's foreign exchange reserves will continue following the principle of diversified investment, enhancing risk management and minimising the negative impact of volatility in global financial markets," People's Bank of China governor Zhou Xiaochuan said in a statement.

"Large fluctuations and uncertainty in the US treasury bond market will affect the stability of international monetary and financial systems, which will hurt global economic recovery."

Also on Wednesday, the Chinese rating agency Dagong downgraded the United States for the second time since November, with a continuing negative outlook.

China, sitting on the world's biggest foreign exchange reserves of around $3.20 trillion as of the end of June, is the largest holder of US Treasuries and has previously expressed concerns over its investments.

China Investment Corp, set up in 2007 to invest a chunk of the country's hefty foreign-exchange stockpile, has been trying to diversify since the global financial crisis struck in 2008.

Diversification difficult

The $400bn sovereign wealth fund has been increasing its already substantial holdings in European bonds to get better returns and prop up debt-laden euro-zone countries, which are major buyers of Chinese exports.

However, analysts said China had no choice but to continue buying US debt in significant amounts for the time being.

"I'm sure they are looking into diversification but it's only going to be at the margins," IHS Global Insight analyst Alistair Thornton said.

"In reality it is very hard for China to diversify away from buying US debt without fundamentally changing its whole economic model... no other market is as liquid as the US debt market."

Yin Zhentao, an economist with the Chinese Academy of Social Science, also said China had few other avenues.

Deepening economic woes

"China's central bank has to mop up liquidity and the US Treasuries are the most important option," Yin said.

Dagong, which has links to the government, said in a statement it had downgraded the United States' local and foreign currency credit rating from A+ to A, with a negative outlook.

Raising the US debt ceiling will "further deepen" the country's economic woes," said Dagong.

Dagong has little financial muscle outside of China but has made a name for itself by accusing its three Western rivals - Moody's, Fitch and Standard & Poor's - of causing the financial crisis by not properly disclosing risk.

The big three agencies have consistently awarded Washington their highest possible "AAA" rating - allowing the United States to take on more debt at lower cost, which China has blamed for fuelling inflationary pressures.

Dagong's chairperson, Guan Jianzhong, is a paid adviser to China's government, but insists his agency is fully independent.

  • Mad Dog - 2011-08-03 09:10

    The Chinese companies are also deep in the debt trap. The difference is that they owe it to their government. One day it will also come down! Not soon but it will come. Just remember... When that happens it was the Mad Dog who predicted it! Captain Morgan for President!

      WiseOwl2 - 2011-08-03 09:49

      Both these pillars of wealth will topple !!!!

      Sanjeev - 2011-08-03 10:09

      Laugh now my Chinas but your time will also come. Your oppression against your people is a ticking time bomb.

      Met - 2011-08-04 11:39

      China is totally dependent on the American consumer (Thanks to Wallmart??)65 % of Chinas GDP is derived from there. The US can function in total isolation while no other country can. Chinas bubble is certainly going to burst( along with Indias)- just a matter of timt. The world is looking into a dark economic hole, but they think its a plasma TV screen

  • Jaimo - 2011-08-03 09:20

    THE WORLD SLAVE STATE is here! The US funded this entire 'GRAND DESIGN' since 1917!!!!! The stupid American people didn't know where their dollar was going from hand picked puppet presidents (GANGSTERS) Now they are in massive debt and will have to pay the interest!!! SLAVES IN THE NEW (blind) WORLD China is following in close footsteps Haha - world

  • slg - 2011-08-03 09:27

    Not the wisest comment, seeing as US debt is funding Chinese growth.

      Rajty - 2011-08-03 09:56

      US debt funding chinese growth...more like the other way round hey...US has no money to invest....china are grabbing market share everywhere....

      Liberty - 2011-08-03 11:21

      @Rajtv don't confuse US government with the private companies. They are still the largest investors in the world, and the US companies are still attracts the highest foreign investments in the world.

      Kunta-Kinte - 2011-08-03 11:46

      Capitalist have no nationality.

      slg - 2011-08-04 04:35

      Rajty, the balance of payments between the US and China is massively in China's favor. Last year $270 billion. This year, moving in the same direction.

      slg - 2011-08-04 04:42

      Kunta, that paradigm is long-gone.

      daaivark - 2011-08-04 07:43

      You must be joking.

      Liberty - 2011-08-04 10:46

      @slg let's not forget that the Chinese economy is fueled by the sweat shops. Masses I mean millions of Chinese working around the clock for a stipend to produce masses of goods of an inferior quality to that produced by the West. Because of the severe exploitation of workers on a massive scale input costs are next to nothing for Chinese companies and they are able to dump garments in many instances with fake western labels onto the the market selling at a lower cost than what it costs to produce in the West. This is just one example. At the same time they are artificially weakening their currency to give them an unfair advantage on the world export stage. Each dog will have it's day and the People's Republic of China's day is coming.

  • Bontage - 2011-08-03 10:39

    These moments are very few and far between, but I agree with China. The US debt deal does nothing save delay the ongoing problem until 2013, when the debt will next hit the ceiling. Their spending culture has not changed, and will not seem to in the future.

  • MnrFotograaf - 2011-08-03 10:51

    There is no way that Chinese is wrong on the USA, but then they have their own problems which will cause even more hurt to the world.

  • sipho - 2011-08-03 11:00

    Some very wise words from the Chinese. Except I'm sure the American's are more than aware of their imminent disaster. You can be sure the Republicans and Democrats and citizens will unite when the S#$^ really hits the fan. Like a war...except this time against debt and resultant poverty...

      Jayxer - 2011-08-03 12:57

      And who's poverty is that? When they have to stop spending what spending of theirs will be the first to be stopped? Spending on poverty stricken countries in Africa like SA!

      daaivark - 2011-08-04 07:45

      Republicans and Democrats unite?! We'll see the unification of the ANCYL with the FF+ sooner.

      Met - 2011-08-04 11:47

      " Their imminent disaster"? I have said it before and do so again. If the US sneezes, the rest of the world gets a flu. And what the US have, is far worse than a sneeze. And the solution? No politician can afford to introduce the measures to correct the situation -Massive debt. It would lead to millions of unemployed, not just in the US, but around the world, including SA

  • rumsour - 2011-08-03 11:07

    The simplest way for the US to bring down its debt is to raise import duties on all products thus making imported products more expensive this will force the American consumer to buy less and encourage the development of American industry.

      sabc10 - 2011-08-03 12:45

      It won't happen because Americans would not like to lower their "high" living standards and wealth....They would have a depression. Simply put : the "dream" which Americans brag and marketed as the american dream is unsustainable.

  • Liberty - 2011-08-03 11:33

    They will sort out the debt problems

  • sabc10 - 2011-08-03 12:41

    The USA is a greedy state run by the "fraud" of wall street.This warmongering state is only interested in its self interest of oil and maintaining the perverse lifestyles of its citizens.This is not a ridicule but a reality of the "American dream".It has created greed and a moral high ground bubble. Many countries of the world are aware of this... not only China. USA is also indebted to other countries. Many US corporates in china are guilty of paying skilled chinese labour poorly and having poor working condtions (eg toxic gases and materials) So for the author to say china "ridicules" usa is purely condescending hypocritical and self righteous.

      k1dbl4ck - 2011-08-03 21:29

      somewhat like the great babel before it fell?

      slg - 2011-08-04 04:41

      Yes, there's been greed, no doubt about it, not only in the US, but pretty much the world over during the financial market bubble of the recent past. But the rest of your message is ridiculously hateful and untrue.

  • Virginia - 2011-08-03 16:56

    China I would not say to mjuch if I was you, plenty of you manufacturing will be taken away from you from these various countries, and we will boycott all your goods in SA.

      Kunta-Kinte - 2011-08-04 05:58

      Three trillion bucks buys a lot of confidence. Big city buildings and mega infrastructure projects once in place will be that way forever, at least for the next four to five generations. Subsidiary structures will be built based on this fundamental grid. There is only one change to get this right and everyone will have to live with the results. Now that the money and confidence is there its a no brainer to build the best and the latest that money can buy. Sure, you say the sky will fall tomorrow. The Chinese know that too. This window of opportunity may disappear tomorrow. Therefore build now and get it done fast. If the sky falls tomorrow at least the building has a good roof and walls already in place and one can shelter under it under the storm passes.

  • Kunta-Kinte - 2011-08-04 05:48

    Unless all nations agree to write off all debt and start again with a clean slate then I fear it may end like that board game we used to play as kids "Monopoly." If not then we will be trading in debt and misery for decades to come.

  • daaivark - 2011-08-04 07:47

    If a financial crunch comes, I reckon the US' most likely way out would be to try to take out their creditor nations in some form of militarty conflict. THAT is the American way. Much like some of our local hotheads. No solution possible? No problem. Bully one's way through.

      world-weary - 2011-08-04 09:25

      nothing like a war to stimulate an economy

      Liberty - 2011-08-04 10:54

      The Chinese has been screwing the West for a long time. I wouldn't feel sorry for the Chinese when that day comes

      sjkranenburg - 2011-08-04 12:02

      uhmmmm... the opium wars? and trust me, that was just the start... go read a book.

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