China Worried About U.S. Debt!!! Saturday, March 14, 2009

Biggest Creditor Nation Demands A Guarantee

Exerting its new influence as th U.S. government's largest creditor, China yesterday demanded that the Obama administration "guarntee the safety" of its $1 trillion in American bonds as Washington goes further into debt to combat the economic crisis.

Chinese Premier Wen Jinbao made the demand at the end of the National People's Congress in Bejing at a time when relations between the two nations show fresh signs of strain.

What $1 trillion looks like

$1 trillion
$1 trillion
Wen Jinbao
Wen Jinbao

Wen Jinbao And Money

"We have lent a huge amount of money to the U.S. of course we are concerned about the safety or our assets," Wen said. "To be honest, I am definitly a little worried."

China surpassed Japan last year as the largest foreign holder of Treasury bonds. Any indication that it intends to cease those purchases or, worse, stage a sell-off could drive up the cost of borrowing for the U.S. government, as well as send mortgage rates higher for millions of Americans.

That reality, experts say, has given China more leverage in its dealings with Washington, with some seeing Wen's comments yesterday as amounting to economic saber-rattling. The words came only days after a confrontation in international waters between a U.S. military ship and five Chinese vessels that sparked recriminations on both sides of the Pacific. Chinese officials have also signaled alarm over a growing "protectionist" sentiment in the U.S. Congress that could further endanger its exports, now in sharp decline as world demand spirals during the global economic crisis.

Those circumstances illustrate the pitfalls the Obama administration is facing as it charts its relationship with China. In January, for instance, the administration signaled that it would confront Beijing on the manipulation of its currency, the yuan, which has been kept artificially low against the U.S. dollar, making Chinese products cheaper around the globe. Critics call that one of the major factors behind the U.S. trade deficit.

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