By Eugene Tang and Tian Ying March 13
China, the U.S. government?s largest creditor, is ?worried? about its holdings of Treasuries and wants assurances that the investment is safe, Premier Wen Jiabao said. ?We have lent a huge amount of money to the United States,? Wen said today at a press conference in Beijing that marked the closure of the annual National People?s Congress meeting. ?Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried. I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China?s assets.? China should seek to ?fend off risks? as it diversifies its $1.95 trillion in foreign-exchange reserves and will safeguard its own interests, according to Wen. He requested that Chinese investors held $696 billion of U.S. Treasuries as of Dec. 31, an increase of 46 percent from the prior year.
Merrill Lynch & Co.?s U.S. Treasury Master index shows the securities declined 0.5 percent last month, after falling 3.1 percent in January, the worst since April 2004, as President Barack Obama sells record amounts of debt to fund his $787 billion bailout. The dollar has dropped 17 percent against the yuan since China ended a fixed exchange rate in July 2005
. ?Our goal is to maintain a basically stable yuan at a balanced and reasonable level,? Wen said. ?At the end of the day, it is our own decision and any other countries can?t press us to depreciate or appreciate our currency.? While the yuan has weakened 0.2 percent against the dollar this year, there has been a ?drastic depreciation? in the euro and Asian currencies that has put a lot of pressure on Chinese exporters, Wen said.
The Obama administration has backed away from January comments by Treasury Secretary Timothy Geithner that the Chinese government manages the currency to gain a competitive advantage
These word from Wen are brutally direct. I would not be surprised if they were coordinated with the military confidence-testing.
They certainly are. But, they are no more dangerous than the current millitary game. A fight on either front, military or economic will hurt both, with China taking the worse.
China knows this, and knows that their economic position may be even more perilous than their military position. They can control military issues but they completely lack control of economic issues. The only card they have on that front is a chest of IOU's. Uncle Sam could run the printing pressess even harder if they wanted and China knows it.
Plus, if we can't buy lead filled crap, they still have to figure out how to keep a billion people from being pissed off that they can't get a job making lead filled crap.
China's hand is way overplayed in my personal opinion.