China’s Banker Blues

Conn Carroll / March 16, 2009

This Saturday the Washington Post reported:

Exerting its new influence as the U.S. government’s largest creditor, China yesterday demanded that the Obama administration “guarantee the safety” of its $1 trillion in American bonds as Washington goes further into debt to combat the economic crisis.
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China surpassed Japan last year as the largest foreign holder of Treasury bonds. Any indication that it intends to cease those purchases — or, worse, stage a sell-off — could drive up the cost of borrowing for the U.S. government, as well as send mortgage rates higher for millions of Americans.

That reality, experts say, has given China more leverage in its dealings with Washington, with some seeing Wen’s comments yesterday as amounting to economic saber-rattling.

But as Heritage research fellow Derek Scissors shows, China’s creditor status does not make them nearly as powerful as they let on: (more…)