China Worried About U.S. Debt

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.

Chinese Premier Wen Jinbao made the demand at the end of the National People’s Congress in Beijing at a time when relations between the two nations show fresh signs of strain.

“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets,” Wen said. “To be honest, I am definitely a little worried.”

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. The words came only days after a confrontation in international waters between a U.S. military ship and five Chinese vessels that sparked recriminations on both sides of the Pacific. Chinese officials have also signaled alarm over a growing “protectionist” sentiment in the U.S. Congress that could further endanger its exports, now in sharp decline as world demand spirals during the global economic crisis.

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