China's 'caustic' warning about America's 'debt addiction'

Beijing, which holds a fortune in U.S. Treasury bonds and dollars, demands that Washington get its finances straight. Should we be worried?

A Chinese investor
(Image credit: REUTERS)

China, the largest foreign holder of U.S. debt, is livid over the downgrading of the American government's credit rating. In a "searing commentary" published over the weekend, the official New China News Agency called on the U.S. to "cure its addiction to debts" and "learn to live within its means." China holds $1.2 trillion in Treasury bonds, and roughly another $2 trillion in dollars. Beijing could do serious damage if it decides to dump U.S. assets. How worried should Washington be about China's "caustic" reaction to the downgrade?

China's bluster is utterly meaningless: If you believe all the "chest-thumping" in Beijing, says Bill Powell at Fortune, the Chinese are about to "take their hard-earned money and go home." But China's boom depends on keeping its currency undervalued so it can sell tons of goods cheaply overseas. If it stops investing its trade surplus in the U.S. and spends it at home, the value of China's own currency, the yuan, will rise. Then China's exports will get expensive, and its boom will end. "There is no chance — none — that this will happen."

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