Illustration: Tang Tengfei/GT

 

A week ago, Chinese and US leaders held a phone call that injected some positive sentiment into what have otherwise been rapidly deteriorating China-US relations.  Nevertheless, the US government seems to continue to provoke China on some issues related to China's national security, including Taiwan Island and the South China Sea. 

Since Washington is bent on poisoning the important bilateral relationship, Beijing should try to warn the politicians in the US that there will be a price to pay if they gamble to trample on China's national security.

Right before Washington requested the phone call on September 10, US Treasury Secretary Janet Yellen warned that the US government was in danger of running out of cash in October, unless the US Congress raises the country's federal debt ceiling. 

The head of the US Treasury Department is talking about a possible default on its debt by the world's only superpower and the biggest economy. The implications of such a scenario for the global economy can hardly be overstated, as Yellen tried to convey in a reported letter to US lawmakers. 

"A delay that calls into question the federal government's ability to meet all its obligations would likely cause irreparable damage to the US economy and global financial markets," Yellen reportedly wrote. 

While Yellen's blunt warning may have been primarily aimed at pressuring US lawmakers into taking action, things are not looking so sanguine. The US Congress, which is possibly among the most dysfunctional government bodies in the world that hasn't got anything meaningful done in years if not decades, is once again engulfed in partisan fighting, as Democrats and Republicans continue their impasse over America's long-term debt.

This headline from The New York Times should sum up the bizarre and profound ineptness and dereliction of responsibility at the US Congress: "As [GOP] digs in on debt ceiling, Democrats try shaming McConnell." 

Let that sink in. The US government is facing default on their financial obligations and the fallback strategy of the US Democratic Party, which is in charge of both the White House and Congress, is to shame Mitch McConnell, the Republican leader in the US Senate, into backing down from trying to stop efforts to raise the debt ceiling. McConnel has made it clear that Republicans would not "facilitate another reckless, partisan taxing and spending spree."

Although bitter partisan fights over the US debt ceiling and government shutdowns have become increasingly common in the US over recent years and the consequences of previous rounds of fights and shutdowns have been largely managed, this new round of confrontation in the US is likely to pose more some serious risks for China's holdings of US Treasury bonds, which currently stands in excess of $1 trillion. 

The most direct risk is from the US' domestic troubles - the inability and irresponsibility of US political leaders, the falling US economy and above all the rapidly evaporating US credibility as a global leader. 

The reason China and other countries purchased US Treasury bonds, which is essentially an investment, is based on baseline assumptions surrounding the stability and credibility of the US as a debtor. But that is no longer the case, as the US has apparently gone rogue and in constant domestic chaos.

Still, the most profound risk comes from the US' reckless hostile actions against China that have chipped away at the mutual trust built between the two countries over the past four decades. 

There have always been differences and disagreements between China and the US over the years, but there were also mutual trust that not only helped prevent conflicts but also cooperate whenever necessary like during the US subprime mortgage induced global financial crisis in 2008 and 2009. 

Those days now appear to be a distant memory when the world's two biggest economies worked hand-in-hand to tackle the global crisis and avert greater damage to the global economy. Today, after an ugly trade war and a spate of US crackdowns against Chinese high-tech companies, the world is understandably afraid that a broad conflict might break out between the world's two major powers.

US President Joe Biden is probably aware of Washington's financial woes, but he did not raise the topic about China's holdings of US Treasury bonds during the phone call, according to readouts from both sides after the phone call. 

In any case, China and other major US Treasury bond holders should seriously consider trimming down their holdings given mounting market risks. China has already been cutting back its holdings in recent months, trimming its holdings for a fourth consecutive month in June to the lowest level since October 2020, according to US official data. In the face of the growing risks, China should stay the course. 

The author is a senior editor at the Global Times. bizopinion@globaltimes.com.cn