Clinton begging China for money

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China to heed Clinton's call on buying US bonds: economists

SHANGHAI (AFP) — China has little choice but to follow Hillary Clinton's call and continue buying US Treasuries, as reversing course would lead to the value of its investments plunging, economists said Monday.

While in Beijing on her first overseas trip as US secretary of state, Clinton urged China on Sunday to keep buying US debt, saying it would help jumpstart the flagging US economy and stimulate demand for Chinese exports.

In fact, China has to keep investing in the United States if it wants to protect the value of its trillions in dollar holdings, said Lu Feng, an economist at Peking University's China Center for Economic Research.

"China is sitting on huge piles of foreign exchange and it will increase its holdings of US Treasuries," Lu said. "Objectively speaking, helping the US economy is good for both China and the US."

China overtook Japan last year as the United States' biggest foreign creditor, and had 696.2 billion dollars of Treasury Bills in December, according to the latest official data from Washington.

Its world-largest foreign exchange reserves, which stood at 1.95 trillion dollars as of the end of December, also mean it is the world's biggest foreign holder of the US currency.

Clinton sought to highlight the importance of the ever-building inter-dependency between the world's biggest and third biggest economies.

"By continuing to support American Treasury instruments the Chinese are recognising our interconnection. We are truly going to rise or fall together," Clinton said at the US embassy in Beijing on the weekend.

Chinese Foreign Minister Yang Jiechi also indicated on Saturday after talks with Clinton that China would not drastically change its US Treasury policies.

However, the countries' interconnectedness has attracted criticism within China, particularly as the global economic crisis slowed the Asian giant's remarkable growth and its high profile US investments showed dismal returns.

Critics have charged that, as a developing country, China should be investing its cash at home instead of subsidising the world's richest country, or else diversifying into other foreign assets.

China's economic planners also understand the dilemma of investing so heavily in US debt.

"If it ceased to buy US treasuries, the value of existing holdings of dollar-denominated assets would drop sharply," said Su Chang, Beijing-based economist with CEBM Group, a consulting firm.

"(But) if China continues to buy them, it needs to worry about the possible depreciation of the dollar in future."

Brad Setser, an economist with the New York-based Council on Foreign Relations, calculated that China provided close to 500 billion dollars in financing to the United States last year -- too much, he argued.

"China now has more exposure to the US than is in its long-run interest," Setser wrote on Monday. Economists argue China risks being trapped as the value of its US assets would fall if it reversed course.

"I also believe the US relies far more on a single government for financing than is in its long-run interest."

Both countries, he said, should have an interest in China gradually providing less ongoing financing to the United States.

http://www.google.com/hostednews/afp/article/ALeqM5hjEfXYmS4p-kY3mMQ0CcxKWuEE2g

It hardly seems dignified, but the US government's only other choice would be to raise taxes.

Well, Ronald Reagan proved that governments can operate by running huge deficits, and letting future generations wonder about the consequences.

But, it is an interesting situation right now--the Chinese keep lending us money, so that we can buy their products, and all that they have to show for it is massive wads of US dollars, with which they can do nothing but lend to our government.

The Chinese are supposed to be naughty communists, and what they did to Tibet was, well, probably a lot less than what we did to our American Indians, but anyway, if the Chinese decided not to lend our government any more money, then the game would be over.

We are developing a dependence on the Chinese. That is definitely a Chinese in our armor.
ruveyhn

I bet if I google "if we go down, so does china"

We are developing a dependence on the Chinese. That is definitely a Chinese in our armor.

ruveyhn

Oh? And who will buy Chinese goods if not Americans? The Finns, perhaps?

Well, I suppose that anything, including driving an SUV full of worthless money to go and buy the Sunday newspaper, is preferable to raising taxes.

Chinese in the armor! Chinese in the armor! Does no one here get the joke? What are you guys anyway, a bunch of autistics?

ruveyn

My apologies. I'm usually better at language, but "Chinese" seemed racist so I subconsciously let it slip by.