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China's Premier Wen Jiabao expressed concern over the United States economic health and the affects it may have upon the large sum of US Treasury securities that China holds.
"We have lent a huge amount of money to the U.S., so of course we are concerned about the safety of our assets. Frankly speaking, I do have some worries" said Premier Wen at a news conference Thursday at the end of the Chinese parliament's annual session. He added that he expected the United States to "maintain its credibility, honor its commitments and guarantee the security of Chinese assets."
According to statistics compiled by the U.S.Treasury Department, China is the single largest owner of U.S. Treasury securities at $727 billion.(as of December 2008)
The Obama Administration moved quickly to assuage China's concern's by reiterating their promise to significantly reduce the budget deficit by 2013: “There’s no safer investment in the world than in the United States,” said White House Press Secretary Robert Gibbs.
According to the Wall Street Journal, Premier Wen did indicate that China would not be making any quick decisions regarding the $1.96 trillion of foreign reserves it holds. While desiring to protect their own economy the Chinese government will "at the same time also take international financial stability into consideration, because the two are inter-related," said Wen.
The New York Time reports that the the Treasury debt that China has purchased in the past few years carries a low interest and would thus suffer a precipitious drop in value if interest rates in the United States were to see a sharp increase.Some economists fear that efforts to deal with the financial crisis--running budget deficits and expanding the supply of money---will result in price inflation and higher interest rates.
This places China in a difficult position. If the United States decides to pursue the option of a smaller stimulus, it will need to borrow less and thus prevent interest rates from rising. However, less spending by the government could also lead to a much slower recovery of the U.S. economy, thereby reducing Americans demand for Chinese goods. The United States saw its trade deficit decline for the sixth straight month with a 9.7 percent decrease in January. While the trade deficit with China did increase to $20.6 billion from $19.9 billion, the U.S. did import 17.6 percent less from China than a year ago at the same time.(source: New York Times)
Such a decrease in American purchasing of Chinese goods may result in a reduction of the buying of U.S. treasuries by China.China announced Wednesday that its exports dropped by nearly 26 percent and some economists think that China's trade surplus could fall to $155 billion, half as much as it was in 2008.That means less money to buy foreign reserves.
The United States continued reliance upon China purchasing US Treasuries chagrins this writer. Secretary of State Hillary Clinton's refusal on her recent trip to China to even bring up China's rather spotty human rights record makes one believe that the United States has compromised its diplomatic and moral integrity in order to continue to fund the decades long materialistic orgy that this country has engaged in.
This is yet another example of how the United States government has gone astray. At some point, this nation has to find its moral, fiscal, and political bearings again.The current situation is clearly unacceptable.
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