China’s official media berate US for debt downgrade

8th August 2011

China says it will also continue to diversify away from Treasuries while futher remarks may give many Americans pause for though – it has demanded that America reform.

"China, the largest creditor of the world's sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China's dollar assets. "

TheWall Street Journal reports on another Chinese government outlet – the People's Daily saying: "What's near the cliff edge isn't the global economy. It's the politics in Washington." It has also called for international coordination and supervision because of the dollar's unique position as the global reserve currency.

In the same newspaper, Shi Jianxun, a professor at Shanghai's Tongji University, says global holders of U.S. Treasuries should work together to protect their investments and make "legitimate" requests for compensation for any losses.That would be unprecedented and deeply unlikely. But any compensation albeit theoretical would be huge.

China has nearly $3.2 trillion worth of foreign-exchange reserves, as much as 70% of which is estimated to be in dollar-denominated assets with the vast majority of those in the form of treasuries.

While we await the US reaction to China, it was left to Australian finance minister Wayne Swan to criticise China in return reported here in the Business Spectator.

"I don't think it's helpful to have some of that commentary that we saw at the weekend. What we have to do internationally is to work closely together to deal with these challenges."

And here on the FT.Com's Beyond Brics blog, Simon Rabinovitch says China is partly to blame. He says: "It is hard to argue with China's view that the US has been addicted to borrowing and living beyond its means. But the addict wouldn't have been so hooked without a generous dealer. China has been the main supplier of the cheap debt that the US has found to be such an irresistible drug.

"China's largesse did not cause the global financial crisis – it did not cause US regulators to overlook dangers in the subprime mortgage market. But it did act as a facilitator, enabling the US to enjoy the ultra-low interest rates for a prolonged period of time that encouraged all kinds of crazy risk-taking."

US politicians have yet to respond to Chinese criticism of its ‘politics' though perhaps, as it comes from the official media, rather than direct from Chinese ministers perhaps the US will keep its counsel. Maybe criticising your biggest creditor isn't viewed as clever politics or economics for that matter.

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