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China says lending to US will not go on forever

Published: December 20, 2008
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Source: AFP

BEIJING (AFP) – China warned Wednesday it would not keep lending money to the US economy indefinitely, even as new data showed it had consolidated its position as the top buyer of American government bonds.

"China's increased purchase of US Treasury securities should not be interpreted as an endorsement of the assumption that the US can borrow its way out of the current financial crisis," the China Daily said in an editorial.

The warning from the state-run newspaper, an English-language daily that mainly addresses a foreign audience, came after the US Treasury Department reported a steep increase in Chinese holding of US Treasury bonds.

China held 652.9 billion dollars of US Treasury bonds at the end of October, up 11.2 percent from 587 billion dollars a month earlier, when China became the largest creditor ahead of Japan, according to the data released Tuesday.

Japan remained in second place, with total holdings of 585.5 billion dollars at the end of October.

The China Daily said that, given the global economic crisis , the consequences would be serious if China and other nations stopped channelling money into the US economy.

"Interest rates in the US would rise to undermine that government's efforts to bailout distressed financial institutions and companies," it said.

China was also constrained by a lack of other places to put its money, according to the paper.

"With few options to invest its increasing reserves safely and profitably, China may thus have to buy more US Treasury securities in spite of growing domestic skepticism that such purchases may incur huge losses later," it said.

However, as China and other nations help prop up the US economy, the United States should use the window of opportunity to undertake necessary reforms, the China Daily said.

"The current strong foreign appetite should not be taken by the US government as solid proof of the long-term value of its Treasury bonds," it said.

"Instead, it should race against time to undertake painful but critical reforms to revive its economy before such demand peaks any time soon."

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