News / Economy

US Debt Debate Displays China’s Economic Fears, Ambitions

FILE - US Hundred dollar notes.
FILE - US Hundred dollar notes.
William Ide
While lawmakers in Washington near the deadline that could see the United States default on its debt, the standoff has provoked stern responses from China. The warnings from officials and shrill commentaries in state-backed media have revealed how much the two countries are economically connected - for better or worse.

Leaders in China can do little but worry and wait to see if the debt debate in Washington comes to a resolution before Thursday’s deadline, when the government technically begins defaulting on payments to its creditors.

State-backed media have been busy using the debt debate as a chance to find fault in America’s democratic political system, which authorities view as inherently handicapped by legislative gridlock, putting at risk the global economic system.

Conspiracy theory

One recent commentary in China’s Guoji Xianqu Daobao warned the United States is about to throw “an economic nuclear bomb,” depressing stock markets until the impasse is resolved.

Another in the Shijie Xinwen Bao cried conspiracy, arguing the government shutdown was just a “Ponzi scheme” directed by Washington to maintain its role as a global financial leader.

The commentary that has attracted the most attention, however, is an opinion piece by state-run news agency Xinhua, calling for a new world economic system that is “de-Americanized.” Despite drawing broad attention overseas, it has had less impact at home and was not published in Chinese.

The article calls for the establishment of a new international currency reserve to replace the one dominated by the U.S. dollar.

Jeffrey Bader, former national security adviser to President Barack Obama says that if Xinhua is saying the situation is horrible, he agrees. He says it is a disgraceful episode in American history, but that markets will determine the fate of the U.S. currency, just as they always have.

“It's not going to be determined by a fiat from Washington or the next chairman of the Federal Reserve announcing that we are going to remain the global currency. Markets everywhere will determine it," he said. "If Zhou Xiaochuan [the head of the People’s Bank of China] or SAFE [State Administration of Foreign Exchange] decided tomorrow that 1.3 trillion in dollars in U.S. treasuries is still risking too much, they would look for alternatives.”

Like many other countries, a large batch of China's $3.66 trillion in foreign currency reserves are held in the low-yield U.S. dollar Treasury bonds, long considered a safe investment with little risk.

That stability has been the main reason that the dollar remains the centerpiece of the global financial system, as a currency countries purchase and hold as a safe asset. 

Looking for options

In recent years, China has slowed its purchase of Treasuries, but it has few other options for storing the surpluses from its export-driven economy.

Financial instability in Europe has hurt the attractiveness of the Euro. And China does not yet allow its own currency to be freely traded across its borders, meaning it cannot become an international reserve.

But Bader said China is taking steps to turn the renminbi or RMB, into a major currency.

“Already many countries with whom China has agreements for settlements of transactions with RMB. Just announced with Australia recently, with New Zealand and a lot of places in Southeast Asia. But China is still quite some distance away from the RMB becoming a significant reserve currency and China is probably not anxious to move in that direction, too,” said Bader.

Even so, China is making efforts to move in that direction. This week, it cleared Britain to join Hong Kong and Taiwan in a program that allows offshore RMB to be invested in Chinese securities.

Soon, investors in London will be able to buy up Chinese bonds, stocks and other market instruments.

Potential downgrade impact

As the debate in Washington pushes into its final hours, U.S.-debt rating company Fitch Ratings says it is reviewing the U.S. government’s AAA status.

For China, a downgrade could wipe out some of their $1.28 trillion in U.S. Treasury holdings.

Jin Canrong, a political scientist at Beijing’s Renmin University, said that could have serious implications domestically.

“That’s the biggest concern right now, nothing else," Jin Canrong said.  He added he doesn’t see any big changes and doesn’t believe the situation will have an impact on U.S. standing in the world. Hence, he said, China still needs to work together with America.

David Dollar, a senior fellow at the Brookings Institution in Washington D.C., said that although the debt debate risks hurting U.S. stature in Asia, the impact is likely to be small.

“I think there is a gradual shift going on where China’s size in the world economy is growing and China’s influence is growing, but that’s a very gradual process,” he said.

The debt standoff in Washington forced President Barack Obama to cancel a trip to key Asian economic and political meetings earlier this month. At a time when the Obama administration has been trying to boost Asian diplomatic and security ties, China has been playing up its own role.

The state-backed Beijing Youth Daily summed up the Chinese view by quoting the proverb, a “good neighbor, is better than a brother far off.”

VOA's Ira Mellman also contributed to this report.

You May Like

WHO: Anti-Ebola Efforts Should Focus on West Africa

Official says WHO is 'reasonably confident' countries bordering those hardest hit by the Ebola outbreak are not seeing the virus crossing their borders More

South Sudan Crisis Threatens Development

Economic costs and lost development opportunities in South Sudan have erased what little progress the country has made since independence in 2011 More

Ukrainian PM Warns: Russia May Try to Disrupt Sunday Poll

Arseniy Yatsenyuk orders full security mobilization for parliamentary election to prevent ‘terrorist acts’ from being carried out More

This forum has been closed.
Comment Sorting
Comments
     
by: Steve Goutzioulis from: Australia
October 16, 2013 9:42 AM
I agree we need a new world economic system that is “de-Americanized

In Response

by: Anonymous
October 16, 2013 3:30 PM
for sure, more China and the rest of the world will benefite

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
After Decades of Pressure, Luxembourg Drops Bank Secrecy Rulesi
X
October 21, 2014 12:20 AM
European Union finance ministers have reached a breakthrough agreement that will make it more difficult for tax cheats to hide their money. The new legislation, which had been blocked for years by countries with a reputation as tax havens, was approved last week after Luxembourg and Austria agreed to lift their vetoes. But as Mil Arcega reports, it doesn’t mean tax cheats have run out of places to keep their money hidden.
Video

Video After Decades of Pressure, Luxembourg Drops Bank Secrecy Rules

European Union finance ministers have reached a breakthrough agreement that will make it more difficult for tax cheats to hide their money. The new legislation, which had been blocked for years by countries with a reputation as tax havens, was approved last week after Luxembourg and Austria agreed to lift their vetoes. But as Mil Arcega reports, it doesn’t mean tax cheats have run out of places to keep their money hidden.
Video

Video Kobani Refugees Welcome, Turkey Criticizes, US Airdrop

Residents of Kobani in northern Syria have welcomed the airdrop of weapons, ammunition and medicine to Kurdish militia who are resisting the seizure of their city by Islamic State militants. The Turkish government, however, has criticized the operation. VOA’s Scott Bobb reports from southeastern Turkey, across the border from Kobani.
Video

Video China Political Meeting Seeks to Improve Rule of Law

China’s communist leaders will host a top level political meeting this week, called the Fourth Plenum, and for the first time in the party’s history, rule of law will be a key item on the agenda. Analysts and Chinese media reports say the meetings could see the approval of long-awaited measures aimed at giving courts more independence and include steps to enhance an already aggressive and high-reaching anti-corruption drive. VOA’s Bill Ide has more from Beijing.
Video

Video US ‘Death Cafes’ Put Focus on the Finale

In contemporary America, death usually is a topic to be avoided. But the growing “death café” movement encourages people to discuss their fears and desires about their final moments. VOA’s Jerome Socolovsky reports.
Video

Video Ebola Orphanage Opens in Sierra Leone

Sierra Leone's first Ebola orphanage has opened in the Kailahun district. Hundreds of children orphaned since the beginning of the Ebola outbreak face stigma and rejection with nobody to care for them. Adam Bailes reports for VOA about a new interim care center that's aimed at helping the growing number of children affected by Ebola.
Video

Video Young Nairobi Tech Innovator on 'Track' in Security Business

A 24-year-old technology innovator in Nairobi has invented a tracking device that monitors and secures cars. He has also come up with what he claims is the most robust audio-visual surveillance system yet. As Lenny Ruvaga reports from the Kenyan capital, his innovations are offering alternative security solutions.
Video

Video Latinas Converting to Islam for Identity, Structure

Latinos are one of the fastest growing groups in the Muslim religion. According to the Pew Research Center, about 6 percent of American Muslims are Latino. And a little more than half of new converts are female. VOA’s Carolyn Presutti travelled to Miami, Florida -- where two out of every three residents is Hispanic -- to learn more.
Video

Video Exclusive: American Joins Kurds' Anti-IS Fight

The United States and other Western nations have expressed alarm about their citizens joining Islamic State forces in Syria and Iraq. In a rare counterpoint to the phenomenon, an American has taken up arms with the militants' Syrian Kurdish opponents. Elizabeth Arrott has more in this exclusive profile by VOA Kurdish reporter Zana Omer in Ras al Ayn, Syria.
Video

Video South Korea Confronts Violence Within Military Ranks

Every able-bodied South Korean male between 18 and 35 must serve for 21 to 36 months in the country’s armed forces, depending upon the specific branch. For many, service is a rite of passage to manhood. But there are growing concerns that bullying and violence come along with the tradition. Reporter Jason Strother has more from Seoul.
Video

Video North Carolina Emerges as Key Election Battleground

U.S. congressional midterm elections will be held on November 4th and most political analysts give Republicans an excellent chance to win a majority in the U.S. Senate, which Democrats now control. So what are the issues driving voters in this congressional election year? VOA National Correspondent Jim Malone traveled to North Carolina, one of the most politically competitive states in the country, to find out.
Video

Video Comanche People Maintain Pride in Their Heritage

The Comanche (Indian nation) once were called the “Lords of the Plains,” with an empire that included half the land area of current day Texas, large parts of Oklahoma, New Mexico, Kansas and Colorado.The fierceness and battle prowess of these warriors on horseback delayed the settlement of most of West Texas for four decades. VOA’s Greg Flakus reports from Lawton, Oklahoma, that while their warrior days are over, the 15,000 members of the Comanche Nation remain a proud people.
Video

Video Turkey Campus Attacks Raise Islamic Radicalization Fears

Concerns are growing in Turkey of Islamic radicalization at some universities, after clashes between supporters of the jihadist group Islamic State (IS) or ISIS, and those opposed to the extremists. Pro-jihadist literature is on sale openly on the streets of Istanbul. Critics accuse the government of turning a blind eye to radicalism at home, while Kurds accuse the president of supporting IS - a charge strongly denied. Henry Ridgwell reports from London.

All About America

AppleAndroid

World Currencies

EUR
USD
0.7893
JPY
USD
107.68
GBP
USD
0.6238
CAD
USD
1.1214
INR
USD
61.185

Rates may not be current.