China Tops Japan in US Debt Holdings

Washington Post,November 19, 2008 Business Section on page D1,D4: China Gains Sway Over US Economy -:

"China passed Japan to become the US government's largest foreign creditor in September, the Treasury Department announced yesterday, reflecting the dramatic expansion of China's economic influence over the American economy. China now owns nearly $1 out of every $10 in US public debt-meaning USA will be increasingly forced to rely on China as it seeks to raise money to cover the cost of a $700 billion bailout. The Treasury does not keep records on domestic bond holders. But analysts said China's holdings are so vast that the existence of a larger stakeholder in the US now seems unlikely." Such evidence may be verified from my previous blogs.

"Analysts say a decision by China to move out of US government bonds, for whatever reasons, could lead a herd of other investors to follow suit. That would drive up the cost of US borrowing, jeopardizing US ability to fund a stimulus package to jump-start the economy. If China were to stop buying or start selling US debt, it would quickly raise interest rates on a variety of loans in the US,anlysts say."
According to my personal judgment,China wants to be a friend of the US. Morever,China also is a participant of international community to maintain financial stability in the world for the wellbeing of humanity.

"China maintains the largest cash reserves of circa $2 trillion and has shed about $50 billion in the firms' debt and mortgage bonds. If China stays away from buying,Fannie Mae and Freddie Mac have had to pay more to borrow and have gotten less for mortgage bonds,pushing up rates for folks seeking home loans as the US government is trying to bring them down." "This is a sign of the growing interdependence between the Chinese and US economies, a sign of a healthy relationship in the long run" said Eswar Prasad, an economics professor at Cornell University and a senior fellow at the Brookings Institution. Such view is the same rationale in my past blogs.

Brad W. Setser,geoeconomics fellow at the Council on Foreign Relations said: "If US labor unions are pushing the incoming Obama administration to urge China to take steps to strengthen the Chinese RMB,which could involve a broad sell-off by China of US Treasury bonds,an unhealthy relationship would occur." My comment: Open trade is to be honored by the Law of Comparative Advantage and the Foreign Exchange Rate is to be determined by the Law of Demand and Supply. Should the leaders in US pay attention to the interest of American consumers who would like to buy products made overseas for less cost especially during the financial crisis?

Readers of the above are entitled to form own thoughts in the days to come for Sino-American economic relations.

Francis Shieh a.k.a. Xie Shihao watching the developments of two economies in the POSITIVE ways in the 21st century. Nobody would impugn,indeed!

November 19, 2008 at 10.16 a.m.