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

Video VOA EXCLUSIVE: Iraq President Vows to Fight IS 'Until They Are Killed or We Die'

In wide-ranging interview with VOA Persian service reporter, Fuad Masum describes conflict as new type of fight that will take time to win More

Video Russian Anti-Corruption Campaigner Slams Putin’s Crackdown on Dissent

In interview with VOA Alexei Navalny says he believes new law against 'undesirable NGOs' part of move to keep Russian president in power More

Video On The Scene: In Ethiopia, 'Are You a Journalist?' Is a Loaded Question

VOA's Anita Powell describes the difficulties faced by reporters in fully conveying the story in a country where people are reticent to share their true opinions 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.
Expelled from Pakistan, Afghan Refugees Return to Increased Hardshipi
X
Ayesha Tanzeem
May 28, 2015 6:48 PM
Undocumented refugees returning to Afghanistan from Pakistan have no jobs, no support system, and no home return to, and international aid agencies say they and the government are overwhelmed and under-resourced. Ayesha Tanzeem has more from Kabul.
Video

Video Expelled from Pakistan, Afghan Refugees Return to Increased Hardship

Undocumented refugees returning to Afghanistan from Pakistan have no jobs, no support system, and no home return to, and international aid agencies say they and the government are overwhelmed and under-resourced. Ayesha Tanzeem has more from Kabul.
Video

Video Britain Makes Controversial Move to Crack Down on Extremism

Britain is moving to tighten controls on extremist rhetoric, even when it does not incite violence or hatred -- a move that some are concerned might unduly restrict basic freedoms. It is an issue many countries are grappling with as extremist groups gain power in the Middle East, fueled in part by donations and fighters from the West. VOA’s Al Pessin reports from London.
Video

Video Floodwaters Recede in Houston, but Rain Continues

Many parts of Texas are recovering from one of the worst natural disasters to hit the southwestern state. Heavy rains on Monday and early Tuesday caused rivers to swell in eastern and central Texas, washing away homes and killing at least 13 people. As VOA’s Greg Flakus reports from Houston, floodwaters are receding slowly in the country's fourth-largest city, and there likely is to be more rain in the coming days.
Video

Video 3D Printer Makes Replica of Iconic Sports Car

Cars with parts made by 3D printers are already on the road, but engineers are still learning about this new technology. While testing the possibility of printing an entire car, researchers at the U.S. Department of Energy recently created an electric-powered replica of an iconic sports roadster. VOA’s George Putic has more.
Video

Video Al-Shabab Recruitment Drive Still on In Kenya

The al-Shabab militants that have long battled for control of Somalia also have recruited thousands of young people in Kenya, leaving many families disconsolate. Mohammed Yusuf recently visited the Kenyan town of Isiolo, and met with relatives of those recruited, as well as a many who have helped with the recruiting.
Video

Video US Voters Seek Answers From Presidential Candidates on IS Gains

The growth of the Islamic State militant group in Iraq and Syria comes as the 2016 U.S. presidential campaign kicks off in the Midwest state of Iowa.   As VOA’s Kane Farabaugh reports, voters want to know how the candidates would handle recent militant gains in the Middle East.
Video

Video A Small Oasis on Kabul's Outskirts Provides Relief From Security Tensions

When people in Kabul want to get away from the city and relax, many choose Qargha Lake, a small resort on the outskirts of Kabul. Ayesha Tanzeem visited and talked with people about the precious oasis.
Video

Video Film Festival Looks at Indigenous Peoples, Culture Conflict

A recent Los Angeles film festival highlighted the plight of people caught between two cultures. Mike O'Sullivan has more on the the Garifuna International Film Festival, a Los Angeles forum created by a woman from Central America who wants the world to know more about her culture.
Video

Video Kenyans Lament Losing Sons to al-Shabab

There is agony, fear and lost hope in the Kenyan town of Isiolo, a key target of a new al-Shabab recruitment drive. VOA's Mohammed Yusuf visits Isiolo to speak with families and at least one man who says he was a recruiter.
Video

Video Scientists Say Plankton More Important Than Previously Thought

Tiny ocean creatures called plankton are mostly thought of as food for whales and other large marine animals, but a four-year global study discovered, among other things, that plankton are a major source of oxygen on our planet. VOA’s George Putic reports.
Video

Video Kenya’s Capital Sees Rise in Shisha Parlors

In Kenya, the smoking of shisha, a type of flavored tobacco, is the latest craze. Patrons are flocking to shisha parlors to smoke and socialize. But the practice can be addictive and harmful, though many dabblers may not realize the dangers, according to a new review. Lenny Ruvaga has more on the story for VOA from Nairobi, Kenya.
Video

Video Iowa Family's Sacrifice Shaped US Military Service for Generations

Few places in America have experienced war like Waterloo. This small town in the Midwest state of Iowa became famous during World War II not for what it accomplished, but what it lost. As VOA’s Kane Farabaugh reports, the legacy of one family’s sacrifice is still a reminder today of the real cost of war for all families on the homefront.

VOA Blogs

World Currencies

EUR
USD
0.9205
JPY
USD
123.69
GBP
USD
0.6508
CAD
USD
1.2456
INR
USD
64.051

Rates may not be current.