China would use its creditor status as bargaining chip with US

Last Updated: Sunday, May 23, 2010 - 22:59

Beijing: On the eve of a crucial Sino-US
strategic dialogue, Beijing has indicated that it would use
its position as the largest holder of US debt to drive a hard
bargain to resist American pressure on currency appreciation
and other issues of strategic interests.

The US Strategic and Economic dialogue will commence
here tomorrow and would be attended by US Secretary of Hillary
Clinton and Treasury Secretary Timothy Geithner, among others.

"As the largest holder of Washington`s debt, China
should strive to drive a hard bargain with the US, especially
in the context of the latter`s insistence on the appreciation
of the Yuan," said a hard-hitting commentary in the ruling
Communist Party mouthpiece, People`s Daily.

China`s US treasury debt holdings rose to a whopping
USD 895.2 billion by the end of March, making it Washington`s
No 1 creditor.

"But China has faced a dilemma due to this status,
which has imposed asymmetrical rights and obligations with
regard to Washington," it said.

Clinton, along with Geithner has arrived in Beijing to
take part in the two-day dialogue, during which analysts say
the two sides would not be sparing any punches.

The dialogue, the second since last year, covers a
whole range of issues including tension in the region over
North Korea`s role in the sinking of a South Korean ship and
concerns over nuclear non proliferation.

Ahead of the dialogue US media has reported that the
two countries has already reached a quid-pro-quo understanding
over China`s plans to build two more nuclear power reactors
for Pakistan in return to Beijing`s backing to US move for UN
sanctions against Iran over its nuclear programme.

The two sides would also be reviewing each other`s
perceptions on the situation in South Asia, which included
India and Pakistan.

India would be closely watching the outcome as the
overarching dialogue is taking place significantly ahead of
India-US strategic and economic dialogue due to be held in
Washington in early June.

While Clinton would hold the strategic dialogue with
Chinese State Councillor Dai Bingguo, Geithner would hold
talks on a range of economic issues with Chinese Vice Premier
Wang Qishan.

The outcome of the talks was expected to set the tone
of their relations for the rest of the year.

US Commerce Secretary Garry Locke has already said
that Washington looks to overhaul its export control policies
this year to pave the way for the sale of more high-technology
goods to China and India, especially in area of green
technology, to boost the stagnant exports.

The People`s Daily in its comments said China should
bargain hard using its creditor status.

Since China`s huge foreign investment is in the form
of reserve assets or government lending, it may be labelled an
"official creditor", as opposed to a "private creditor", which
is based on a country`s foreign direct and private
investments.

By the end of last year, China`s foreign reserves had
touched USD 2.3992 trillion, or 69.3 per cent of the USD
3.4601 trillion that the country held in foreign financial
assets, it reminded Washington.

"As a fledging creditor nation, China has chosen to
convert its enormous trade surplus into official foreign
reserves, which have partly found its way into the US capital
markets due to Beijing`s large-scale purchases of US
government bonds," it said.

"China is expected to get a return ratio of only 3 to
4 per cent by investing in the national debt of the US.

"On the other hand, the US, despite its huge debt and
yawning trade deficit, accepts more dollar inflow, and then
invests these commodity dollars, chiefly into Asian emerging
markets".

"As a result, Washington gets a return ratio of 10-15
per cent compared to China`s much lower investment return
ratio," it said.

PTI



First Published: Sunday, May 23, 2010 - 22:59

More from zeenews

 
comments powered by Disqus