China will sell its U.S. government debt as soon as it can safely do so, top adviser to the Chinese central bank Li Daokui said at the World Economic Forum in Dalian.
“Once the U.S. treasury market stabilizes we can liquidate more of our holdings of treasuries,” Li said, according to an article by the Telegraph’s international business editor, Ambrose Evans-Pritchard, published on September 15.
“To my knowledge, this is the first time that a top adviser to China’s central bank has uttered the word ‘liquidate,’” writes Evans-Pritchard.
China is believed to own $2.2 trillion of U.S. debt.
“The Chinese are clearly vexed with Washington, viewing the Fed’s QE [quantitative easing] as a stealth default on U.S. debt,” writes Evans-Pritchard. “Mr. Li came close to calling America a basket case, saying the picture is far worse than when Ronald Reagan and Margaret Thatcher took over in the early 1980s.”
China is still keeping its renminbi artificially cheap, which means it must keep selling yuan. So it must keep buying foreign assets or debt. Li said China “would like to buy stakes in Boeing, Intel and Apple, and maybe we should invest in these types of companies in a proactive way.”
“It is bad for bonds—or will be,” writes Evans-Pritchard. “The money will go into strategic land purchases all over the world, until the backlash erupts in earnest. It will go into equities, until Capitol Hill has a heart attack. It will go anywhere but debt.”
And when the Chinese stop buying America’s debt, it will mean the end of cheap credit for the already cash-strapped U.S. government. •
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