China and US locked in diplomatic dance of debt

• Source: Globaltimes
• [22:35 February 28 2010]
• Comments

On the other hand, at the current stage China has no choice but to buy more US securities, since China's foreign exchange reserves have reached $2.4 trillion, and China has no more profitable and safer investment channel. Sudden dumping of US dol-lars will cause market fluctuations and thus heavy losses.

China's holding of US bonds reflects the status quo of Sino-US relationship: The two countries' interests are so intertwined that they cannot be separated. There are both plus and minus.

The plus is that since the two countries are so interdependent, both governments should be aware of the importance of dealing with bilateral relationship in a cautious and proper way.

The negative aspect is that such an issue directly mirrors the US's excessive consumption and China's over-dependence on exports. Such an imbalanced development is unsustainable, but it cannot be easily solved, either.

When I was working on this article, the US Department of Treasury released an updated report: China held $894.8 billion of US Treasury securities by the end of December 2009, and $1.46 trillion of US securities by June 2009. Both figures are a long way ahead of Japan, the second largest holder.

China might not want its role as the US's biggest creditor to be so emphasized, but with the two nations locked in a financial clinch, there's no way to avoid it in the foreseeable future.

The author is a Washington DC-based Chinese journalist. forum@globaltimes. com.cn