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People's Daily column: China must punish US for Taiwan arm sales with 'financial weapon'

Timing is everything. Three days after Standard & Poor's downgraded U.S. debt, and two days after China's official Xinhua newswire published a scathing critique of the American economy, People's Daily ran a column on its English-language website today with the headline "China must punish US for Taiwan arm sales with 'financial weapon.'"

China, as we all know, is the largest foreign holder of U.S. Treasuries -- to the tune of $1.1 trillion-plus. Ongoing discussions of a U.S. sale of F-16s to Taiwan, which Beijing considers to be part of its sovereign territory, is a hot-button topic in Beijing. China broke off military exchanges with the United States last year after Washington announced the sale of $6 billion-plus in arms to Taiwan.

The argument presented by Ding Gang, an editor at the state-run People's Daily newspaper, did not wander.

His first line --"Now is the time for China to use its 'financial weapon' to teach the United States a lesson if it moves forward with a plan to (sell) arms to Taiwan."

A bit later: "The essence of the problem is that some U.S. Congress members hold a contemptuous attitude toward the core interests of China, which shows that they will never respect China. China-U.S. relations will always be constrained by these people and will continue along a roller coaster pattern if China does not beat them until they feel the pain."

Then this: "China should consider how to build a direct link between the U.S. Treasury bond purchase and U.S. domestic politics while adopting measures to gradually adjust the structure of China's foreign exchange reserves. 

For example, China can directly link the amount of U.S. treasury holdings with U.S. arms sales to Taiwan and require international credit rating agencies to demote U.S. treasuries to force the United States to raise interest rates."

And: "China can also launch limited trade sanctions to the states of those U.S. Congress members who vigorously advocated arms sales to Taiwan to affect their employment."

To be sure, Ding also acknowledges that to target U.S. Treasuries by selling off Beijing's holdings, or by slowing future purchases, would inflict pain on China itself, which stands to lose a considerable amount of money if the value of its U.S. holdings dipped. That central fact -- I've heard it referred to as a sort of economic mutually assured destruction -- has convinced most observers that China wouldn't engage in any sudden moves along those lines.

Ding's saber rattling doesn't change that reality. But his timing is interesting.

 UPDATE: The Chinese language version of the column ran in Global Times, a tabloid published under People's Daily, on August 4. The timing of its publication in English today remains very interesting.

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Comments

WFG Convention

Quiet informative post.Ding acknowledges that to target U.S. Treasuries by selling off Beijing's holdings would inflict pain on China itself which stands to lose a considerable amount of money if the value of its U.S. holdings dipped...thanks

Puma Outlet Store

Then there is the other side of the equation: the required return on debt from the point of view of the lender. The lender assesses the risk (or likelihood or uncertainty) that they will get their money back (and that the "money" is worth the same per dollar....so we are ignoring inflation just to simplify things). The less certain they are, the higher the return they are going to demand before they buy the debt. This required rate of return is a cost to the economy -- a higher cost eats away at profits, and makes the economy less productive, less able to reinvest, employ capital and labor, and grow.

Igor

Just stop trading with China all together. Their products are all garbage. Would biggest cheaters.

Xeifrank

China is a paper tiger. They can't unload their US Treasuries because they would take massive losses and the US would buy them up at a basement bargain level. Win/Win for the US. Paper tiger!

Skaught

His childishness ("beat them until they feel the pain") shows that this is just the same empty talk that they love so much.

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