“China threatens ‘nuclear option’ of dollar sales”

[sjk]

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.

advertisementIt 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.

Information appearing on telegraph.co.uk is the copyright of Telegraph Media Group Limited and must not be reproduced in any medium without licence. For the full copyright statement see Copyright

[GoUSC]

This would crash the US economy which is the principle source of business for China. This doesn’t serve China whatsoever and would draw them into deep recession as well. I think there is historical precident (has happened before) for this but can’t recall which countries were involved.

[GoUSC]

This would crash the US economy which is the principle source of business for China. This doesn’t serve China whatsoever and would draw them into deep recession as well. I think there is historical precident (has happened before) for this but can’t recall which countries were involved.

[GoUSC]

This would crash the US economy which is the principle source of business for China. This doesn’t serve China whatsoever and would draw them into deep recession as well. I think there is historical precident (has happened before) for this but can’t recall which countries were involved.

[sjk]

Yes it would, but so would a higher Yuan. The game is almost over for the Dollar.

Huge economic changes are coming…………….

Regards,

[sjk]

Yes it would, but so would a higher Yuan. The game is almost over for the Dollar.

Huge economic changes are coming…………….

Regards,

[sjk]

Yes it would, but so would a higher Yuan. The game is almost over for the Dollar.

Huge economic changes are coming…………….

Regards,

[joebaduba]

tit for tat.

certain presidential aspirants must be on again crying about the unfairness of it all.

chinese would be nuts to throttle the consumption engine that drives their surplus.

everybody please keep spending so they don’t sell their t-bills.

[joebaduba]

tit for tat.

certain presidential aspirants must be on again crying about the unfairness of it all.

chinese would be nuts to throttle the consumption engine that drives their surplus.

everybody please keep spending so they don’t sell their t-bills.

[joebaduba]

tit for tat.

certain presidential aspirants must be on again crying about the unfairness of it all.

chinese would be nuts to throttle the consumption engine that drives their surplus.

everybody please keep spending so they don’t sell their t-bills.

[BuyerWillEPB]

Mr Paulson… 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.
———————————————————–

I think that a “softer” form of diplomacy is the wisest path for the US these days.

I spent 3 months traveling all over China a couple years ago. There were many times when I would see or hear about the things the Western powers (barbarians, they call us) did to them back in the 1800’s and 1900’s. We, collectively (meaning USA, Europe, and Japan), inflicted embarrassing Unequal Treaties on China when they were weak. The amazing part to me was how they still remember it as if it was yesterday, and not 100+ years ago. I mean most Americans don’t even know that we fought a military campaign in China in 1901. But believe me when I tell you that THEY remember this very well, even to this day.

So now that WE are in the weak position, it’s not the time to try and strong arm China. They have us by our economic short and curlies, and they are looking for any excuse to get a little pay back from our mistreatment of them in the past.

[BuyerWillEPB]

Mr Paulson… 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.
———————————————————–

I think that a “softer” form of diplomacy is the wisest path for the US these days.

I spent 3 months traveling all over China a couple years ago. There were many times when I would see or hear about the things the Western powers (barbarians, they call us) did to them back in the 1800’s and 1900’s. We, collectively (meaning USA, Europe, and Japan), inflicted embarrassing Unequal Treaties on China when they were weak. The amazing part to me was how they still remember it as if it was yesterday, and not 100+ years ago. I mean most Americans don’t even know that we fought a military campaign in China in 1901. But believe me when I tell you that THEY remember this very well, even to this day.

So now that WE are in the weak position, it’s not the time to try and strong arm China. They have us by our economic short and curlies, and they are looking for any excuse to get a little pay back from our mistreatment of them in the past.

[BuyerWillEPB]

Mr Paulson… 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.
———————————————————–

I think that a “softer” form of diplomacy is the wisest path for the US these days.

I spent 3 months traveling all over China a couple years ago. There were many times when I would see or hear about the things the Western powers (barbarians, they call us) did to them back in the 1800’s and 1900’s. We, collectively (meaning USA, Europe, and Japan), inflicted embarrassing Unequal Treaties on China when they were weak. The amazing part to me was how they still remember it as if it was yesterday, and not 100+ years ago. I mean most Americans don’t even know that we fought a military campaign in China in 1901. But believe me when I tell you that THEY remember this very well, even to this day.

So now that WE are in the weak position, it’s not the time to try and strong arm China. They have us by our economic short and curlies, and they are looking for any excuse to get a little pay back from our mistreatment of them in the past.

[one_muggle]

This would crash the US economy which is the principle source of business for China. This doesn’t serve China whatsoever and would draw them into deep recession as well. I think there is historical precident (has happened before) for this but can’t recall which countries were involved.

radelow, I believe the precedent to which you are referring were the two great nations The Turtle and The Scorpion…
http://www.snopes.com/critters/malice/scorpion.asp

That wasn’t a Chinese fable was it!?

-one muggle

[one_muggle]

This would crash the US economy which is the principle source of business for China. This doesn’t serve China whatsoever and would draw them into deep recession as well. I think there is historical precident (has happened before) for this but can’t recall which countries were involved.

radelow, I believe the precedent to which you are referring were the two great nations The Turtle and The Scorpion…
http://www.snopes.com/critters/malice/scorpion.asp

That wasn’t a Chinese fable was it!?

-one muggle

[Author]

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