It is popular to speculate about what might happen if China ever grew tired of providing the United States with cheap capital to fund [mass consumerism/the real-estate bubble/our exorbitant lifestyle/our fat/flat-screen televisions/the deadly "greed virus"]. We think these questions overblown. It might be simplistic to think about Sino-American economic relations as China lending us money at low rates so that we can buy massive amounts of cheap exports that the Chinese would never want and could never use, thereby keeping their unemployment rates low and providing a nice return on their investment. Then again it might not.
Chinese leaders are not as concerned with staying in power as not being shot in the back of the head. The bargain the Party has struck with its subjects ("Leave the political power to us and we will deliver you a measure prosperity via 'capitalism lite,'") doesn't leave much room for maneuver if the prosperity bit starts to slip. It isn't an accident that the government recently made some gentle reminders to its humble citizens (and not so humble students) that another Tienanmen wouldn't be tolerated. So, dump treasuries in bulk? Not so fast. But they will, we think, try to get some mileage out of the perception.
The premier said Beijing expected to see results from President Barack Obama's economic recovery plan but expressed concern that massive U.S. deficit spending and near-zero interest rates would erode the value of China's huge U.S. bond holdings.
That's right, Mr. President. You work for Beijing now.
China is the biggest holder of U.S. government debt and has invested an estimated 70 percent of its $2 trillion stockpile of foreign exchange reserves, the world's largest, in dollar assets.
"We have lent a massive amount of capital to the United States, and of course we are concerned about the security of our assets. To speak truthfully, I do indeed have some worries.
"I would like, through you, to once again request America to maintain their creditworthiness, keep their promise and guarantee the safety of Chinese assets," Wen said.
This may well end in tears.
China expresses worry over its U.S. assets [Reuters]