Saturday, March 14, 2009

China Worried After Lending 'Huge Amount' to U.S.

China Worried After Lending Huge Amount to U.S.


As China's slumping economy feels the impact of the global recession, Chinese leaders are showing their irritation with the U.S. That's obvious in the ongoing war of words following a near-clash between U.S. and Chinese naval vessels in the South China Sea on Mar. 8. Chinese gripes with the Americans extend to key economic concerns, too, such as U.S. complaints about the Chinese currency and Beijing's suspicion that the U.S. is lapsing into protectionist policies.

On Mar. 13, China's Premier Wen Jiabao ramped up the rhetoric some more. Wrapping up the annual session of China's Parliament, Wen took a swipe at the U.S., which has depended largely on Chinese investment in Treasury bonds to fund its large budget deficit. Over the past few years, China has built up the world's largest foreign reserves, totaling $1.95 trillion, with some two-thirds of that held in U.S. assets, mainly Treasuries. As the global economy has weakened, the value of China's investments has decreased. "We have lent a huge amount of money to the United States," Wen said at a press conference in Beijing's Great Hall of the People. "I am a little bit worried. I request the U.S. to maintain its good credit, to honor its promises, and to guarantee the safety of China's assets."

Another area of sensitivity is the value of China's currency, the yuan. With exports plunging in China, down 25.7% in February, and some 20 million in export factories out of their jobs, Beijing has slowed the appreciation of its currency. Chinese officials already reacted angrily to criticism that it was "manipulating" its currency made by U.S. Treasury Secretary Timothy Geithner during his late January Senate confirmation hearings. Signaling that Beijing has no intention of budging on the issue, Wen spoke out during the morning press conference. "I don't think the [yuan] is depreciating. Since we reformed the exchange rate in July 2005, the yuan has appreciated 21% against the U.S. dollar," the Premier said. "No other country can put pressure on our country to depreciate or appreciate the [yuan]."

Trade Protectionism?

China's leaders are also speaking out against what they see as "surging" protectionism, as Wen described it during the Mar. 5 opening of the National People's Congress. Over the past several months several of China's state-controlled newspapers have editorialized against "buy American" rules in the U.S. stimulus plan. "If a country only buys products that it produces itself, and forbids the import of other countries' products without reason, this suggests a move to trade protectionism," Chinese Commerce Minister Chen Deming said on Mar. 10. The most recent target of Beijing's ire: U.S. restrictions on the import of Chinese poultry. "I believe that any trainee with a preliminary knowledge of the WTO disciplines will tell that this section violates the basic rules of the WTO," a Chinese trade official said, referring to the ban, at a WTO meeting in Geneva on Mar. 12, according to official news agency Xinhua.

Along with the tough talk, Beijing is expressing confidence about China's ability to weather the global recession. While conceding that China will face challenges in reaching a planned-for 8% gross domestic product growth this year, Wen said he expected ultimate success. And while Beijing did not announce plans to expand the size of its $586 billion stimulus as some had anticipated, China has the ability to spend more, since it has targeted a relatively small budget deficit of 3% of GDP for this year. "We have prepared enough ammunition and we can launch new economic stimulus policies at any time," Wen said.



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