China loses patience with US leaders who 'kidnapped' world finance
Saturday 30 July 2011
China, the world's biggest owner of US Treasuries, turned up the pressure on the US to sort out its sovereign debt woes yesterday as its official news agency labelled American politicians "dangerously irresponsible" for failing to resolve the crisis.
As nervous investors dumped short-term Treasury bills, China's state-controlled Xinhua news agency said US politicians had "kidnapped" the rest of the world in a "game of chicken" by wrangling over a deal to raise America's $14.3 trillion (£8.7trn) debt ceiling.
The agency said in an editorial that many countries would be caught in the "impact zone" if politicians failed to agree a deal by Tuesday's deadline, with China set to be hit particularly hard because $1.2trn of its colossal $3.2trn of foreign reserve holdings are in US Treasuries.
In a sign of investors' skittishness, the rate on Treasury bills maturing next Thursday jumped to 28 basis points, or 0.28 per cent, yesterday, from 16 basis points on Thursday and virtually zero two weeks ago. By contrast, T-bills due to expire before Tuesday remained at virtually zero yesterday.
Xinhua's comments followed a call from Yu Yongding, a former Chinese central bank adviser, for the country to reduce its US Treasury holdings, saying: "US bonds are not safe, but people think they are. That is a mirage."
China has been "passively diversifying" its fast-growing foreign exchange reserves away from US Treasuries for the past six years, increasing its total holdings of American sovereign debt, but decreasing them as a percentage by acquiring a growing range of other overseas assets, according to David Mann, Standard Chartered's regional head of research for the Americas.
But economists say the rate at which China diversifies away from US Treasuries – and US assets in general – is likely to accelerate as a result of this crisis, even if the expected last-minute deal to raise the debt ceiling is cobbled together.
Mark Williams, the senior China economist at Capital Economics, said: "China can reduce its share of US Treasuries and there is inconclusive evidence to suggest that maybe it has already done that this year. That could reduce faster if there is a downgrade."
Mr Mann added: "Confidence in US Treasuries has been shaken and this could have an impact on Chinese ownership around the margin."
However, economists said China was unlikely to embark on any large-scale selling of US bonds because such a move could significantly reduce their value, while there is no viable alternative safe haven in which to invest such huge amounts. Furthermore, Chinese acquisitions of dollar-denominated assets are crucial to China's policy of increasing the attractiveness of its exports by keeping the value of its currency low.
In other signs of nervousness, CME, the world's largest futures exchange operator, asked traders to post more Treasuries as collateral for outstanding trades, to protect itself in the event of falling valuations. Meanwhile, money market funds dedicated to Treasuries pulled $21bn out of those funds this week, compared with an average inflow of $280m in the first three weeks of July, according to Crane Data.
- 1 Stolen Instagram photo sells for $90,000
- 2 Before you complain about your GP, this is what you need to know about actually doing the job
- 4 'Don't blame all men for rape' campaign backfires spectacularly
- 5 Charlie Charlie Challenge explained: not a Mexican demon being summoned — it's gravity
UK's biggest male rape charity Survivors UK has state funding slashed to zero despite 120% rise in men reporting sexual violence and seeking help
Priest warns pupils the 'Charlie Charlie Challenge' is 'demonic activity'
'Don't blame all men for rape' campaign backfires spectacularly
Iran launches anti-Isis cartoon competition 'to expose true nature of Islamic State'
Fifa corruption arrests: Sepp Blatter 'quite relaxed' and confident he is 'not involved'
EU referendum: David Cameron's rules are a 'democratic disgrace', says French-born Scottish politician set to be denied a vote
The day that Britain resigned as a global power
SNP fury as HS2 finds 'no business case' for taking fast train service to Scotland
Australian man punched in the face for defending Muslim women from abuse on train
A nation of inequality: How the UK is failing to feed its most vulnerable people
David Starkey 'tells Amal Clooney to shut up and stop over-promoting human rights'
iJobs Money & Business
£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...
£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...
£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...