The Crisis Reinforces Chinese Bankers in the World

Being the largest creditor of the United States, Beijing is now lecturing the West, requiring them to bring order to their finances.

Gone are the days when China was under pressure from Western criticism because of its failure to respect human rights. Today, Beijing is with great delight to share their economic advice. Commenting on the market turmoil, the People’s Daily, organ of the Communist Party, called on Western countries to “take their courage” to reduce their debt.

“If the developed countries refuse to take responsibility, there will be serious consequences on the stability and development of the global economy,” said the Xinhua news agency after the downgrade of the U.S. debt rating.

On Saturday, August 6, Xinhua had already criticized Uncle Sam and denounced the country living on credit. “In order to cure their addiction to debt, the U.S. must restore the principle of common sense that we must live within our means,” wrote the Chinese agency.

China called Washington to make cuts in its “massive military spending” and its overinflated costs of social system. “China now has all rights to require the United States to address their structural problems of debt.”

Chinese Rating Agency Dagong

China currently holds for 1160 billion of U.S. Treasuries. This makes it by far the largest creditor of the United States.

In the recent past, Beijing has used this position to assert its interests, particularly when U.S. President Barack Obama had estimated last year that the course of the Chinese currency was undervalued. Beijing was then suggested that it could reduce its purchases of U.S. Treasuries.

Wednesday, August 3, China’s central bank was again made clear its intention to “diversify” into the future purchases of foreign currency in order to reduce the risks it faces. For several years, Beijing seeks to use its growing economic power to weigh more compared to other G8 countries.

It has created its own rating agency Dagong, which notes the debt of the Western countries with much more severity than the three recognized agencies: Standard and Poor’s, Moody’s and Fitch.

Last Wednesday, the Chinese agency had already downgraded the rating of U.S. debt to “A +” to “A negative outlook,” three notches below the rating assigned by Standard and Poor’s. And the agency has also deteriorated last year, the French debt rating to “AA with a negative outlook.” From Beijing’s view, western countries are considered more vulnerable than they would appear.