China, the largest foreign holder of United States debt, said Saturday that Washington needed to “cure its addiction to debts” and “live within its means,” just hours after the rating agency Standard & Poor’s downgraded America’s long-term debt.
The harshly worded commentary, released by China’s official Xinhua news agency, was Beijing’s latest effort to express its displeasure with Washington.
“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” read the commentary, which was published in Chinese newspapers.
Beijing, which did not release any other official statement on the downgrade, called on Washington to make substantial cuts to its “gigantic military expenditure” and its “bloated social welfare” programs. .
While Washington wrangles over its debt and deficit problems and the European Union struggles to deal with its own debt issues, China is sitting on the world’s largest foreign exchange holdings, and its economy is growing at close to 9 percent. The country is also once again racking up huge trade surpluses with the rest of the world.
Beijing does have its own worries, like soaring inflation and housing prices and an overheating economy. Policy makers are also trying to deal with the accumulation of huge foreign exchange holdings. Trade and current account surpluses have helped China accumulate the vast foreign exchange reserves. It has invested much of those reserves in United States Treasury bonds, largely because the American market has long been considered the safest and most liquid bond market in the world.
Analysts say that China can also buy bonds in the European and Japanese markets but that those two markets are not big or liquid enough to absorb China’s fast-accumulating foreign exchange reserves.
“International supervision over the issue of U.S. dollars should be introduced, and a new stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country,” the Xinhua commentary said.
The US Congress moved closer to punishing China for allegedly manipulating its currency, as a key committee of the House of Representatives voted to advance legislation that could