The recession occurring in the United States has lead to financial distress in many other countries over seas, but no country is more intertwined with the US economy than China. In a recent article published by MSNBC, China’s vice governor of the People’s Bank of China discussed the rising fear looming over failing U.S businesses. China is Washington’s biggest foreign creditor, holding an estimated $1 trillion in U.S. government debt. Investing in US treasury bills is
“an important component part of China’s foreign currency reserve investments, so as an important component we are naturally relatively concerned with the safety and profitability of U.S. government bonds.”
People’s Bank of China Vice Governor Hu Xiaolian said at a news conference on Monday. Concerned about the rising debt to fund Washington’s enormous stimulus package, Hu apparently aimed this statement at the fear of inflation and the weakening of the U.S dollar.
The implied warning to Washington by China’s leaders was excessively blunt. Don’t devalue the dollar through reckless spending, such as the massive stimulus package. Premier Wen Jiabao’s message is unlikely unheard at the White House, which responded by reassuring that there is no other safer investment in the world than the United States. In reality, the U.S is counting on Beijing to aid in coming up with their stimulus package through purchasing U.S. bonds. When asked about the level of concern over U.S treasury bills, Wen responded,
“Of course we are concerned about the safety of our assets. To be honest, I’m a little bit worried,I would like to call on the United States to honor its words, stay a credible nation and ensure the safety of Chinese assets.”
After reading about China’s concerns I began to wonder what would happen if the U.S dollar value did decline. What if would couldn’t honor our treasury bills and Chinese investments? What affect would this have on countries outside of the U.S and China. My worst fear looking at this situation is a strained relationship between China and the U.S, which happen to be the two most powerful countries in the world. Both countries rely on each other financially and that alliance has helped both countries prosper immensely. Hopefully with a little help from the class a clear picture could be drawn about the repercussions of a relationship collapse between the U.S and China.