China threatens 'nuclear option' of dollar sales

[bparker]

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/07/bcnchina107a.xml

China threatens 'nuclear option' of dollar sales


By Ambrose Evans-Pritchard
Last Updated: 9:54am 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.
Blog - Dollar to collapse?

Fistful of dollars - China's trade surplus reached $26.9bn in June

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.
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.

[usetosellhummer]

We mortaged our future with the debt, and guess who holds the purse strings. If we don't play nice and get our house in order we will get our a$$ handed to us. Try Depression. An army means nothing in this time, it's money that is the true power.

[NEOCON1]

as long as we keep buyin all their crap we will be safe

[marin8703]

Originally Posted by NEOCON1

as long as we keep buyin all their crap we will be safe

thats exactly what it is crap.

if they dont play this card now they will later. i agree with the bit** on this one. asia has control of the us economy, and thereby can makes us so anything. we have to get out of this position anyway possible.

i say better sooner than later.

[H2Finally]

The reason why everything is made in China, is so that the owners/shareholders can get more profit. If they are not made in China, consumer will be forced to pay more, and they won't, because the other Chinese competitors will come out with much cheaper generic / copy cat versions within weeks if not hours of the original item launching. The only way mfr can be competitive is to have their original designs also mfrd in China.

In fact you'd be hard pressed to find items NOT made in China anymore. Including of course, the new iPhones.

So all crap? Not anymore. Especially if you're buying a fundamentally well designed product from a solid company that backs it with good warranty & support program.

[bparker]

You are referring to the 1% of the stuff that comes from China - the other 99% is crap.

I am old enough to remember when things lasted till you were tired of looking at it or it just wore out. Now things are so cheap and cheaply built when it breaks we just say screw it I will buy another one.

People used to use the saying "well made" all the time and now its a rarity or surprise to hear someone say that - and its most often associated with premuim products or antiques.

Originally Posted by H2Finally

So all crap? Not anymore. Especially if you're buying a fundamentally well designed product from a solid company that backs it with good warranty & support program.