Should China use its massive holdings of American debt to interfere in U.S. domestic politics? According to this column by Senior Editor Ding Gang of the state-controlled People’s Daily, American arms sales to democratic Taiwan undermine China’s sovereignty, and must be countered regardless of the financial losses to both the U.S. and China.
If the United States moves forward with its plan to sell weapons to Taiwan, the time will have come for China to use its “financial weapon” against America and teach it a lesson. China has never wanted to use its holdings of U.S. debt as a weapon. But the United States is forcing it to do so.
Despite knowing that creditor countries, particularly China, would be the largest buyers of its new debt, certain arrogant and disrespectful U.S. Congressmen and women have completely ignored China’s core interests, pressuring President Obama to sell advanced jets and even a package of weapons upgrades to Taiwan.
Halting or cutting back massively on purchases of U.S. Treasury bonds will to a certain degree inflict losses on China. So China must endeavor to cut its losses and turn a situation of passivity into one of action. China should ponder ways to directly link U.S. Treasury bond purchase to American domestic politics, while adopting measures to gradually adjust the structure of its foreign exchange reserves.
For example, China could link the amount of U.S. Treasury holdings to U.S. arms sales to Taiwan. Furthermore, it could require international credit rating agencies to further downgrade U.S. Treasuries to force the U.S. to raise interest rates. China could also impose limited trade sanctions on states of U.S. Congress members who vigorously advocate arms sales to Taiwan, which would negatively impact employment in their states.
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