China Says It Is "Worried" About Its Loans to the United States

According to today's New York Times:

"The Chinese premier Wen Jiabao expressed concern on Friday about the safety of China's $1 trillion investment in American government debt, the world's largest such holding, and urged the Obama administration to provide assurances that its investment would keep its value in the face of a global financial crisis. ...

"President Obama and his new government have adopted a series of measures to deal with the financial crisis. We have expectations as to the effects of these measures,' Mr. Wen said. 'We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.'

He called on the United Sates to 'maintain its good credit, to honor its promises and to guarantee the safety of China's assets.'"

Hmm. Is this why Secretary of State Clinton was so hesitant about pushing the Chinese on human rights issues during her recent visit there? Are we becoming hostage to our creditors so that we cannot stand up for our principles? If this is happening now, what is it going to be like as we need even more money to finance the deficits that President Obama is envisioning over his two terms?

We can at least be thankful that the Cold War is over and that China isn’t the Soviet Union. It probably does mean, however, that we will be giving less support to the people of Tibet who are seeking just a little autonomy. Charter ’08 and house churches in China proper will be more on their own. In Darfur the United States will be less likely to be able to pressure China to cut back on its support for a Sudanese government that is committing atrocities, if not genocide, against some of its own people.

The situation is unfortunate, but do we need to worry? Probably not. Or at least not very much. However, as Tyler Cowen commented at MarginalRevolution.com a couple of weeks ago, Taiwan should be worrying – a lot.

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Update (3/13/09 11:50 p.m.): I made some minor edits in the second to the last paragraph.

Comments

[ultraguy]

You pretty much nailed it here. Nice analysis. China is using its clout to expand sphere of influence while reducing ours. (It's our own fault, but that's a different thought.)

It's like the neighbor who loans you a few grand to get through a rough patch, only to see you driving a brand new car and hiring landscapers, (all the while donating the rest to *other* neighbors he doesn't even like).

What this will mean in practice, on any given foreign policy issue (good catch on Darfur, btw), is that there will be a kind of non-verbal 'dance'. China signals what it would like, and we take that into account in what we choose to do and choose not to do. Or they don't even signal but we go out of our way to consider their desires.

Play it out just a little and it's not hard to envision our being pressured into not 'wasting' our resources on (say) confronting Russia's increasingly assertive moves in our hemisphere, or (say) spending any more blood and treasure protecting Israel and keeping the islamists at bay. (China knows how to take care of them far more effectively, albeit brutally, than we do; it has been doing so for years in its western provinces.)