China Threatens to Dump U.S. Treasury Bonds Over Taiwan Arms Sales

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Wednesday, February 10, 2010 at 4:13 pm

Majors General Zhu Chenghu and Luo Yuan and Colonel Ke Chungqio of the Chinese People’s Liberation Army were quoted in an official Chinese publication calling for the Chinese government to retaliate against the United States economically for the recent decision to sell $6.4 billion of arms to Taiwan. China has already announced unspecified sanctions against U.S. companies that participate in the sale.

Luo, also a researcher at the Chinese Academy of Military Sciences, doesn’t think those sanctions go far enough. He told China’s Outlook Weekly:

“We should go in for a strategic mix of retaliation across politics, military matters, diplomacy and economics… For example, we could sanction them using economic means, such as by dumping some US government bonds.”

China has quite the history of threatening to dump its U.S. Treasury bond holdings in retaliation for unspecified U.S. actions or to achieve specific economic ends. Reuters notes that China is currently the largest holder of U.S. Treasuries, and has actually doubled its holdings since 2007.

Some economists think it’s all just posturing, particularly as the military has little influence over economic regulators in China. India’s Daily News & Analysis reports that most analysts recognize that if China dumps its Treasuries, it will do as much damage to its own economy as to the United States’:

[Patrick Chovanec, associate professor at Tsinghua University in Beijing said] “The Chinese economy continues to depend on exporting products for dollars – and accumulating even more dollars,” noted Chovanac. Chinese exports, GDP growth employment — all of it depended on China’s continued ability to sell product for dollars.

In other words, selling Treasuries would devalue the dollar, causing China to hurt its own ability to export to the United States — which is still the engine of its economy. Furthermore, Chovanec added that if China simply wanted to devalue the dollar, it could stop artificially devaluing its currency against the dollar, which is what the United States wants and China has resisted for years.

Dumping U.S. Treasuries en masse would be the economic equivalent of China cutting off its nose to spite its face, and the people in charge of China’s economy recognize that (for now). That there are some there who value the One-China policy above all else is little surprise; that they’re not in charge of China’s economy should come as little, too.

Follow Megan Carpentier on Twitter


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21 Comments

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dirks
Comment posted February 10, 2010 @ 5:43 pm

We'll buy them back………. for cents on the dollar.


Tom
Comment posted February 10, 2010 @ 6:10 pm

If the US either defaults on its debt or purposely tries to devalue its own debt to its creditors, it will possibly forever tarnish its credibility with any other nation. You can forget about ever selling any more debt. The economy would crash, maybe for good. This isn't really a better option.


Irish_Wake
Comment posted February 10, 2010 @ 7:29 pm

Ms. Carpentier, I believe you dismiss these PLA officers much too easily.
The China's largest stockholder is the People's Liberation Army.
These officers were not voicing their own opinion.
They are discussing military options in an economic arena.
They are discussing leverage.

I agree little will happen in the immediate future. But these gentlemen are not speaking of the immediate future.


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Pingback posted February 10, 2010 @ 9:32 pm

[...] China Threatens to Dump U.S. Treasury Bonds Over Taiwan Arms Sales … [...]


dirks
Comment posted February 10, 2010 @ 10:43 pm

We'll buy them back………. for cents on the dollar.


Tom
Comment posted February 10, 2010 @ 11:10 pm

If the US either defaults on its debt or purposely tries to devalue its own debt to its creditors, it will possibly forever tarnish its credibility with any other nation. You can forget about ever selling any more debt. The economy would crash, maybe for good. This isn't really a better option.


Irish_Wake
Comment posted February 11, 2010 @ 12:29 am

Ms. Carpentier, I believe you dismiss these PLA officers much too easily.
China's largest stockholder is the People's Liberation Army.
These officers were not voicing their own opinion.
They are discussing military options in an economic arena.
They are discussing leverage.

I agree little will happen in the immediate future. But these gentlemen are not speaking of the immediate future.


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Pingback posted February 11, 2010 @ 1:40 am

[...] debt across all ends of the curve, all the way to corporate debt, mortgage debt etc. This week, a story has been attracting attention regarding a threat by the Chinese to begin dumping US Treasuries as [...]


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Pingback posted February 11, 2010 @ 9:22 am

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Pingback posted February 11, 2010 @ 9:34 pm

[...] past 1 year. So, such reports are more rhetoric and noise than action. The Washington Independent reports:    Majors General Zhu Chenghu and Luo Yuan and Colonel Ke Chungqio of the Chinese People’s [...]


Gateway Pundit
Pingback posted February 16, 2010 @ 1:13 pm

[...] threatened to dump US debt this week over the sale of $6.4 billion of American weapons to Taiwan. But, it looks like it’s [...]


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Pingback posted February 16, 2010 @ 1:13 pm

[...] threatened to dump US debt this week over the sale of $6.4 billion of American weapons to Taiwan. But, it looks like it’s [...]


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Pingback posted February 17, 2010 @ 8:27 am

[...] last week’s call by Chinese military officials to dump U.S. Treasury bonds over the recent agreement to sell arms to Taiwan seemed haphazardly [...]


Managing The Dragon » Blog Archive » Why is China Dumping U.S. Treasuries?
Pingback posted February 18, 2010 @ 4:16 am

[...] blamed the securities sales on the recent announcement by the United States that it would sell $6.4 billion of arms to Taiwan. This argument was given some credence when Majors General Zhu Chenghu and Luo Yuan and Colonel Ke [...]


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Pingback posted October 6, 2010 @ 12:45 am

[...] about the Chinese People’s Liberation Army denying us access to the Asian-Pacific region, but the real danger is their denying us access to their capital, which buys up US debt and keeps the US government [...]


Hercule_Savinien
Comment posted December 18, 2010 @ 10:59 pm

BEIJING’S THREAT TO ECONOMIC GLOBALIZATION: Bubble’s of economic comfort, Washington, D.C., Tokyo, and Táib?i Shì; Northern Taiwan City,

Well it has begun the attack on the [DPRC] Democratic Peoples Republic of China, which is now labeled once again a Cold War foe, in an article on the site (www.japantimes.co.jp), entitled [Defense focus shifts from Russia to China-Beijing’s rising military might, North’s threat key concerns], by Masami Ito. This article coming on the heels of the [American-Israeli Military Industrial Complex] direct attack upon the Chinese Currency the Yuan, with it’s passage of [QE-3] QUANTITIVE EASING THREE-[BO] Tax cuts, which is the massive dump of yet another Trillion Dollars upon the World Currency Market in an attempt to devalue the dollar, while forcing up the value of the Chinese Yuan on the World Currency Markets. The Central Government of Japan, in Tokyo will set its defense budget at [€0.03T/¥23.39T] Point Zero Three Trillion Euro’s/Twenty-Three point Thirty-Nine Trillion Yen, with an additional [€0.93B/¥100B] Zero-Point Nine-Three Billion Euro’s/One-Hundred Billion Yen additional ceiling funding for unexpected situations, for the next decade [10] ten year period. And this is all caused by the growing [DPRC] defense budget, military activities, and lack of it transparency, causing military issues of shared fundamental values, with urgent destabilizing regional and international concern. The line has been drawn in the Sea of Japan and the Yellow Sea, with the [American-Israeli Military Industrial Complex [7th] Fleet] beefing up it presence in the Yellow Sea drawing its line at less than [300km] Thee-hundred kilometers from the Chinese Mainland, and [3km] Three kilometers from the disputed Yellow Sea boarder between the [DPRK] Democratic Peoples Republic of Korea and the [ROK] Republic of Korea, just [12km] Twelve kilometers from the [DPRK] mainland coastline, extending to the Nationalist Chinese breakaway island of Taipei, connecting there with the Japanese [SDF] Self Defense Force running its line in the Sea of Japan to connect with the [American-Israeli Military Industrial Complex] line thru the Nansei Islands between Kyushu joining the multiple series of Siege Lines drawn in the sand around the [DPRC] meeting that of the [7th] Fleet at Taipei, and we can expect that the breakaway Nationalist Chinese government will have an upgrade of its military which in the past has been put on hold in difference to the [DPRC] Sphere of Influence military and geo-political muscle within that Sphere, but that is too now will be challenged.

Yet Another Gomenesai Tour

The [2nd] Second Class citizens of the Japanese Empire, the peoples of Okinawa are once again too be sacrificed on the alter of Mainland Japanese Companies, by the Central Government of Tokyo, allowing the citizens of the Japanese Mainland to live in their bubble of economic comfort, of family solidarity and corporate customs of annual bonuses, provided by investments, and profitable companies located in the [American-Israeli Military Industrial Complex], maintaining its own global leadership in high-tech niches in electronics and carbon fibers, providing Japanese know how to Apple’s iPhone and Boeing’s latest airplane which rely heavily on Japanese innovations. But at the lost of the freedom of the peoples of Okinawa, ending any dream of a renewed Edo Era of the once [1600-1800] period with sufficient wealth able to invest in its own development, creating a refined Okinawa National identity and culture for present and future generations to come, as [1st] Class Citizens of their own [DPRO] Democratic Peoples Republic of Okinawa, free of [American-Israeli Military Industrial Complex] Occupation and mistreatment by the Japanese Central Government willing to allow them to be threat as [2nd] Class Citizens upon their own land, carrying the Burden of foreign occupation, given only a continuous series of Gomenesai Tours in exchange. With the Central Government leading economist and architect of the Japanese Economic System Eisuke Sakakibara telling the citizens of Okinawa to wake up from their poetic utopia dream of a [2nd] Second Edo Era and except the new economic globalization process, an lot as [2nd] Class Citizens of an occupied nation, for the greater good. And what does the Central Government of Japan offer the peoples of Okinawa in return, the [JSDF] Japanese Self Defense Force, will be given [€0.031T/ ¥33.54T] Point-Zero-Thirty-One Trillion Euros/Thirty-Three-Point-Five-Four Trillion Yen , to offset the [Extortion Tax] paid for the Japanese Mainland taxpayers and the occupied peoples of Okinawa themselves to keep the burden of the Super Debtor American-Israeli Military Industrial Complex forces of occupation, and its [200+] Two-Hundred plus, illegal nuclear weapons on the Island of Okinawa, and off the Japanese mainland, leaving the burden of it all on the [2nd] Class Japanese citizens of Okinawa, all to support the economic globalization comfort bubble’s of Washington, D.C., Tokyo, and Táib?i Shì; Northern Taiwan City.

HERCULE TRIATHLON SAVINIEN


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