Beijing (AFP) – A senior Chinese official voiced concern over a looming deadline for raising the U.S. debt ceiling Monday, saying the “clock is ticking” to avoid a default that could seriously harm China’s economic interests.
“As the world’s largest economy and the issuer of the major reserve currency in the world, it is important for the U.S. to maintain the creditworthiness of its Treasury bonds,” vice finance minister Zhu Guangyao told reporters. “It is important for the U.S. economy as well as the global economy.”
Zhu spoke with the United States government in a partial shutdown since the beginning of this month, due to a dispute between Republicans and Democrats over funding President Barack Obama’s signature health care programme that has prevented the passage of key spending legislation.
An even more serious problem is the prospect that the U.S. government will not have enough cash to pay its bills if an agreement to raise its debt ceiling is not reached by October 17.
Treasury Secretary Jacob Lew said Sunday the U.S. will have reached the maximum it is allowed to borrow on that date, and with only $30 billion cash in hand to meet obligations that can run to $60 billion a day, it will quickly face default.
Zhu, one of three Chinese officials briefing reporters ahead of Premier Li Keqiang’s departure for a regional summit this week in Brunei — which Obama plans to miss due to the standoff in Washington — called on the U.S. to take quick and decisive action.
“We hope that before October 17, the U.S. will take credible steps to address its disputes over the debt ceiling in a timely fashion, avoid a default and ensure the safety of Chinese investments in the US and ensure the process of global economic recovery will not be seriously affected by this,” he said.
Zhu added that as the world’s two largest economies, the U.S. and China are “inseparable”, stressing their annual bilateral trade of $500 billion, US direct investments in China and China’s possession of a “vast number of U.S. Treasury bonds”, without giving a total.
Over the years, China has recycled some of its trillions of dollars in foreign exchange reserves, the result of huge trade surpluses, by investing in U.S. Treasury. As such it has become a significant creditor of the U.S., which runs chronic deficits.
Zhu said that the two sides have been in close contact on the issue and the U.S. was clearly aware of China’s concerns about the gridlock.
He also acknowledged that Obama and Lew were working to avoid a possible default.
“But we have to see that the clock is ticking,” Zhu said. “It is only one week away before the deadline on the 17th.
“The executive branch of the U.S. government has to take decisive and credible steps to avoid a default on its Treasury bonds,” he said.
Only the U.S. can work out what is a domestic issue, he said, “but it also has global implications so that’s why we say that the government and the Congress have to speed up their negotiations”.
Regarding Lew’s potential challenge of having to decide which bills to pay with limited funds, Zhu said that the “key issue” for the U.S. must be to make interest payments on its debt.
“This is something that the U.S. government has to give consideration on the priority basis,” he said. “It has to realize the major significance of this issue.”
Copyright 2013 The National Memo