US turns other cheek at China debt lashing

US Treasury Secretary Tim Geithner (L) and
China’s Vice Premier Wang Qishan
© AFP/File Mandel Ngan

WASHINGTON (AFP) – The United States is pointedly turning the other cheek despite an explosion of criticism of its debt debacle in China’s official media, including a charge its economy is no more than a Ponzi scheme.

The rhetorical barrage has included claims that Washington has shirked its global responsibilities and should feel “shame” about its addiction to debt, in unusually cutting commentaries savaging the world’s largest economy.

Top US officials have avoided responding in kind, careful not to fan the panic which has rocked global markets with a new feud between the White House and the world’s largest holder of Treasury bonds.

But some here see the venom directed at Washington as perhaps a sign of frustration among Chinese officials at the extent to which their huge holdings of US debt make Beijing hostage to a dysfunctional American political system.

Other observers sense a rise in patriotic anxiety among Chinese investors and the wider populace, often bursting out on blogs and the Internet, over Beijing’s policy of piling up foreign exchange reserves.

US Treasury Secretary Timothy Geithner did send a clear signal following Standard & Poor’s decision to downgrade the AAA US debt rating to AA+ on Friday, that there was no sign of China changing its investment strategy.

“They’ve always been very strong and I’m sure they’ll be strong investors in the US going forward, as will investors around the world. I’m very confident in that,” Geithner told CNBC.

Geithner also spoke on Tuesday with China’s Vice Premier Wang Qishan to discuss challenges facing the global economy and the state of global financial markets, a Treasury official said.

US officials have also made the case that despite a political showdown between Obama and Republicans, which drove the United States to the edge of default, and fears of a double dip recession, the United States remains one of the world’s safest investments.

“It’s quite striking that on a day when the market obviously took a real hit, when there was a flight to safety, money went into US Treasury bonds, said President Barack Obama’s budget director Jack Lew on the “Charlie Rose” show on PBS on Monday.

To some extent China, with US bond holdings of $1.2 trillion, is trapped in an embrace with Washington, as any sell off would cause the yuan currency to rise and make its exports more expensive in the United States.

China habitually buys dollars then invests them in Treasuries to hold down the value of the yuan currency which Washington says is artificially low against the greenback and costs US jobs.

A bank teller counts stacks of US dollars
and Chinese 100-yuan notes
© AFP/File

It also accumulates dollars by running up trade surpluses.

Pointed criticism by Chinese Communist Party media outlets of US fiscal policy may reflect the growing confidence and global clout of China, and the comparative weakening of the mighty US economy.

Analysts said that the outpouring of press attacks were partly aimed at restive domestic audiences in China and but may also reflect some attempt by Chinese officials to take a political swipe at Washington.

“Probably some of this is borne of a sense of the Chinese government’s desire to (exercise) its own right to criticize the United States,” said Elizabeth Economy of the Council on Foreign Relations.

“Certainly there is some of that comes because the netizens are being critical of the Chinese government for kowtowing to the United States,” she said.

Charles Freeman, of the Center for Strategic and International Studies, detected some frustration among the bureaucracy in China at gridlocked Washington.

“The Chinese are frustrated that they can talk to Geither, they can talk to (Federal Reserve Chairman Ben) Bernanke — they can’t talk to and reach Congress,” he said.

US officials privately distinguish between the harsh rhetoric being flung around by the official media in China and a more sober reaction from senior officials.

Comments Tuesday by China’s Premier Wen Jiabao, who called on “relevant nations” to adopt “concrete and responsible fiscal and monetary policies,” were also carefully noted in Washington.

Wen’s intervention was seen by some observers as an attempt to cool anxiety over China-US tensions following plunges on global stock indices which led to fears of a new global recession which neither China nor Washington desires.

China’s unease over the apparent inability of the gridlocked US political system is also likely to be a major bone of contention when Vice President Joe Biden heads to Beijing later this month for talks with top Chinese officials.