The downgrading of the US’s S & P credit rating from AAA to AA+ shined the limelight on something that has been known but perhaps not sufficiently acknowledged — China’s vast foreign holdings. China has $3.2 trillions-worth of foreign reserves, $1.1 trilion in US Treasuries, notes the Guardian. While Chinese government agencies and China’s central bank have so far been mum about the downgrade, People’s Daily, the official Communist party newspaper, issued a scold to the US to “cure its addiction to debts” over the weekend. State-owned newspapers have continued to blast the US, not to mention Europe, for not “living within their means.”
Over the weekend, other Chinese websites including Sina Weibo (aka China’s version of Twitter, which is banned by Beijing) hosted fervent discussions about the S & P downgrade, though not so much to censor the West as to ask why the Chinese government has invested almost half of the country’s foreign reserves in US Treasury securities:
“The United States’ sovereign credit rating suffered a downgrade, why did we become the biggest victim?” one microblogger wrote on Sina Weibo, one of the more popular sites, which had hundreds of such postings. “China is always bowing to the United States, when will China really rise up and cast aside its constant fear of the United States’ reactions!”
“On the question of U.S. debt, China’s strategic decision makers are pigs, they would rather let the people’s money be used by others than let the money be used by their own people,” said one posting over the weekend. The comment soon disappeared, presumably removed by censors.
Noting that “much of the outcry seemed to be more about venting wounded pride than proposing monetary alternatives” — though the Saturday Xinhua editorial blasting the US did say that a new global reserve currency should be created — the New York Times points out that “few other options exist as long as China sees the need to buy tens of billions of dollars each month to keep its currency weak and protect the nation’s export machine.”
China’s economy had 9.5 growth in the second quarter. Last year, it racked up a $273 billion trade surplus with the US. But experts point out, even as China fears for losses in its foreign reserves, it is (not that it will admit it) partly to blame due to its failure so far to shift its economy towards domestic consumption, says the Guardian:
The economy remains investment- and export-driven, leaving it vulnerable to external shocks. But if one long-standing concern has been a double-dip recession, Beijing’s other great anxiety has been controlling politically risky inflation. While a massive stimulus package helped China ride out the storm last time – aiding the global recovery – concerns about rising prices will make officials wary of loosening monetary policy. Either way, they will worry about potential social unrest.
Prices for housing, consumer goods including food and services were up 6.4 percent in China last year.
Photo by futureatlas.com
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