Thread: China threatens USA nuclear option of $$$ sale off

http://www.telegraph.co.uk/money/main.j ... na107a.xml

China threatens 'nuclear option' of dollar sales
By Ambrose Evans-Pritchard
Last Updated: 1:48am BST 08/08/2007



The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

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It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.

He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.

"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.

"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.

The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo".

She said foreign control over 44pc of the US national debt had left America acutely vulnerable.

Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.

"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said.

A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.

The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June.

Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".

Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy, but appeared to win few concession from Beijing on a unscheduled trip to China last week aimed at calming the waters.
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This is going to be another fight in Washington.....we can't let this happen, both parties need to fight for America and our jobs, no matter what China does!

Thanks to our government for the wise decisions in trade policy. (read with maximum sarcasm!)

Hi Moosetracks,

Originally Posted by Ambrose Evans-Pritchard

China threatens 'nuclear option' of dollar sales

Ambrose, tell the Chinese to take a number behind India - India gets weapons grade uranium under the nukes for mangos trade deal. India has the long range launchers (just like Hillary's buddy, Kim Jung IL). Maybe that's why certain senators are groveling to India.

You sleep with dogs, you're going to get fleas!

I still can't figure out why we're doing business with a communist country that thrives on sweatshop labor.

Check this out:

http://www.nlcnet.org/article.php?id=197

http://edstrong.blog-city.com/ipod_and_ ... labour.htm

http://www.commondreams.org/news2000/0425-01.htm

http://www.corpwatch.org/article.php?id=14383

It's disgraceful that we allow anything to be sold in this country that is manufactured under such misery!

Financial people have been warning of such a thing for at least 5 years that I know of -although I don't really understand all of it.

THIS IS WHY YOU DON'T DO BUSINESS WITH A COMMUNIST COUNTRY. WE SHOULD HAVE KICKED OUT CHINA FROM OUR PORTS YEARS AGO

Yet business like Walnut keep going on with China. Google too. When are these CEOs going to get it through their thick skulls that communist countries cannot be trusted? Even my 9-year old knows better!

If China were to do that the AMERICAN public would not buy one single item made in CHINA! It would have a devestating effect on China!

We would recover, and probably be stronger because we would again have to be a manufacturing economy again! Which would help the US become a stronger world power...

So, go ahead China- CHECK MATE!

Ken

Who the heck is paying for their nukes. Well we are darn it. They can't talk to us like that. What are they going to do shove there crap down our throats till we die? If it says made in China it will kill you and your pets.

The new world order in action, maybe should all sing kumbaya now and everything will be alright.

Originally Posted by Rockfish

THIS IS WHY YOU DON'T DO BUSINESS WITH A COMMUNIST COUNTRY. WE SHOULD HAVE KICKED OUT CHINA FROM OUR PORTS YEARS AGO

Yet business like Walnut keep going on with China. Google too. When are these CEOs going to get it through their thick skulls that communist countries cannot be trusted? Even my 9-year old knows better!

You got that right.