News / Asia

Creditors Japan, China Worried About US Shutdown

An employee of the Tokyo Stock Exchange reacts as he watches a stock index board at its headquarters in Tokyo, Japan, August 8, 2011.
An employee of the Tokyo Stock Exchange reacts as he watches a stock index board at its headquarters in Tokyo, Japan, August 8, 2011.
William Ide
Asia’s two biggest economies, Japan and China, are voicing concerns about the ongoing government shutdown in Washington and the possibility that Congress may fail to raise the debt ceiling, leading to a government default. 

Financial leaders there are telling U.S. officials, both openly and in private, about the ripple effect the dispute in Washington could have on their investments in bonds and what that could mean for their own economies.
 
Japanese Finance Minister Taro Aso speaks at the Center for Strategic and International Studies in Washington, Apr. 19, 2013.Japanese Finance Minister Taro Aso speaks at the Center for Strategic and International Studies in Washington, Apr. 19, 2013.
x
Japanese Finance Minister Taro Aso speaks at the Center for Strategic and International Studies in Washington, Apr. 19, 2013.
Japanese Finance Minister Taro Aso speaks at the Center for Strategic and International Studies in Washington, Apr. 19, 2013.
According to U.S. Treasury figures, Japan owns $1.135 trillion in U.S. Treasury bonds and China slightly more at $1.277 trillion.

Speaking at a regular news briefing on Tuesday, Japanese Finance Minister Taro Aso urged political leaders in Washington to resolve the debate before the October 17 deadline, when the United States risks defaulting on its debts.

On Monday, China's deputy finance minister, Zhu Guangyao, urged U.S. leaders to learn from the past, noting the last time the dispute neared the brink in 2011, the credit rating agency Standard and Poor's downgraded the U.S. credit rating.
 

China Vice Finance Minister talks to the media in Los Cabos, Mexico, June 17, 2012.China Vice Finance Minister talks to the media in Los Cabos, Mexico, June 17, 2012.
x
China Vice Finance Minister talks to the media in Los Cabos, Mexico, June 17, 2012.
China Vice Finance Minister talks to the media in Los Cabos, Mexico, June 17, 2012.
"The U.S. knows clearly China’s concerns on the financial stalemate," Zhu said. "China also learned that President Obama and the treasury secretary and other branches of the executive branch know the seriousness of the situation and are taking measures to avoid a default.  However, we have seen the clock is ticking.”
 
Song Hong, an economist at the Chinese Academy of Social Science says it is not just the price of U.S. bonds that will be impacted if the dispute is not resolved.
 
"If the debt is not adjusted then I think that it will have a big hit on the stability of the U.S. bond market, and the U.S. bond market has a direct link with the international status and value of the U.S. dollar," said Song. "This kind of scenario will have repercussions not just for China, but for the whole world economy, because the U.S. dollar is a global currency.”
 
Both China and Japan rely on exports to keep their economies humming and any impact on the value of the U.S. dollar hurts their trading competitiveness. That competitiveness has helped Japan’s Prime Minister boost the Japanese economy in recent months.
 
China too needs economic stability as its growth slows. The country’s new leader Chinese President Xi Jinping is poised to introduce a new wave of economic reforms at a Communist Party meeting next month. Policymakers have been trying to move the country away from its heavy reliance on exports for economic growth.
 
Frederic Neumann, co-head of Asian Economics at HSBC in Hong Kong says the big fear for Chinese policymakers is that with the potential gridlock on Capitol Hill, the potential default could lead to another recession in the United States.
 
The US debt limit:

  • Is the total amount of money the US government can borrow to meet existing legal obligations
  • Obligations include Social Security, Medicare, military salaries, interest on the national debt, tax refunds
  • Raising the debt limit does not authorize new spending commitments
  • Failing to increase the debt limit would cause the government to default on its legal obligations
  • Since 1960, Congress has acted to raise the debt limit 78 times

Source: US Department of Treasury
“And that would hurt China through slowing exports to the U.S. and that is really something that would then require even more stimulus locally to help the Chinese economy sort of to withstand the blow from a U.S. default, and Chinese officials are not terribly keen on adding more stimulus to the economy," he said.
 
Neumann adds, however, that this does not mean that China would be the biggest loser if the default were to happen because it is not the majority holder of U.S. debt.
 
“Most of U.S. debt is still held within the United States by pension funds, insurance companies, banks and so forth, and to the extent that the U.S. government defaults on those bonds, it would hurt American savers just as much as overseas savers," he said. "And therefore it would be an own goal it would be essentially the U.S. shooting itself in the foot, by defaulting on its own debt.”
 
As the standoff moves into its second week and most of the U.S. government remains closed it is unclear if or how soon a breakthrough might be reached. On Monday, the White House said it wants a big enough increase in the debt ceiling now, so it would not have to be raised again until late next year. But spokesman Jay Carney said the White House is not ruling anything in or out when Congress considers how long to raise the debt limit.

You May Like

French Refugee Drama Wins Cannes Top Prize

Dheepan is about a group of Sri Lankan refugees who pretend to be a family in order to flee their war-torn country for a housing project in France More

Photogallery Crisis in Macedonia Requires Meaningful and Swift Measures

The international community has called on Macedonian leadership to take concrete measures in support of democracy in order to exit the crisis More

Activists: IS Executes 217 Civilians, Soldiers Near Palmyra

British-based Syrian Observatory for Human Rights on Sunday said the victims include nurses, women, children and Syrian government fighters More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Female American Soldiers: Healing Through Filmmakingi
X
Bernard Shusman
May 24, 2015 2:55 PM
According to the United States Defense Department, there are more than 200-thousand women serving in the U.S. Armed Forces.  Like their male counterparts, females have experiences that can be very traumatic.  VOA's Bernard Shusman tells us about a program that is helping some American women in the military heal through filmmaking.
Video

Video Female American Soldiers: Healing Through Filmmaking

According to the United States Defense Department, there are more than 200-thousand women serving in the U.S. Armed Forces.  Like their male counterparts, females have experiences that can be very traumatic.  VOA's Bernard Shusman tells us about a program that is helping some American women in the military heal through filmmaking.
Video

Video Rolling Thunder Run Reveals Changed Attitudes Towards Vietnam War

For many US war veterans, the Memorial Day holiday is an opportunity to look back at a divisive conflict in the nation’s history and to remember those who did not make it home.
Video

Video Millions Flock to Ethiopia Polls

Millions of Ethiopians cast their votes Sunday in the first national election since the 2012 death of longtime leader Meles Zenawi. Mr. Meles' party, the Ethiopian People's Revolutionary Democratic Front, is almost certain of victory again. VOA's Anita Powell reports from Addis Ababa.
Video

Video Scientists Testing Space Propulsion by Light

Can the sun - the heart of our solar system - power a spacecraft to the edge of our solar system? The answer may come from a just-launched small satellite designed to test the efficiency of solar sail propulsion. Once deployed, its large sail will catch the so-called solar wind and slowly reach what scientists hope to be substantial speed. VOA’s George Putic reports.
Video

Video FIFA Trains Somali Referees

As stability returns to the once lawless nation of Somalia, the world football governing body, FIFA, is helping to rebuild the country’s sport sector by training referees as well as its young footballers. Abdulaziz Billow has more from Mogadishu.
Video

Video With US Child Obesity Rates on the Rise, Program Promotes Health Eating

In its fifth year, FoodCorps puts more than 180 young Americans into 500 schools across the United States, where they focus on teaching students about nutrition, engaging them with hands-on activities, and improving their access to healthy foods whether in the cafeteria or the greater community. Aru Pande has more.
Video

Video Virginia Neighborhood Draws People to Nostalgic Main Street

In the U.S., people used to grow up in small towns with a main street lined by family-owned shops and restaurants. Today, however, many main streets are worn down and empty because shoppers have been lured away by shopping malls. But in the Del Ray neighborhood of Alexandria, Virginia, main street is thriving. VOA’s Deborah Block reports it has a nostalgic feel with its small restaurants and unique stores.
Video

Video Effort Underway to Limit Damage from California Oil Spill

Cleanup crews are working around the clock to remove oil from the waters off the coastal city of Santa Barbara, in California. About 380,000 liters of oil may have leaked out before a rupture in an onshore, underground pipeline was discovered Tuesday. The environmental disaster hit the popular West Coast resort area before the Memorial Day weekend. VOA's Zlatica Hoke reports investigators have yet to determine what caused the incident.

VOA Blogs