SHANGHAI – China, the largest foreign holder of U.S. debt, said Saturday that Washington needed to “cure its addiction to debts” and “live within its means,” just hours after the rating agency Standard & Poor’s downgraded America’s long-term debt.
The harshly worded commentary, which was released by China’s official Xinhua news agency, was Beijing’s latest effort to express its displeasure with Washington.
Though Beijing has few options other than to continue to buy U.S. Treasury bonds, Chinese officials are clearly concerned that the country’s substantial holdings of U.S. debt, worth at least $1.1 trillion, are being devalued.
“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” read the commentary, which was published in Chinese newspapers.
Beijing, which did not release any other official statement on the downgrade, called on Washington to make substantial cuts to its “gigantic military expenditure” and its “bloated social welfare” programs.
The commentary serves as a sharp illustration of how the United States’ standing in the world is sliding and how China now views itself as ascendant. Because China has about $3 trillion in foreign exchange reserves, there are few places big enough to invest those holdings safely outside of U.S. Treasurys, even though it looks as if they may lose value.
Analysts say that if China pulled back from buying Treasurys, the dollar would weaken and America’s borrowing costs would rise sharply, but that would also hurt China’s existing holdings.
Beijing’s reaction to the downgrade was the harshest among foreign leaders.
Officials in Japan and France said their faith in the U.S. government remained strong. The Australian prime minister, Julia Gillard, warned against overreacting, while the Indian finance minister, Pranab Mukherjee, said the downgrade had created a “grave” situation, one that would require some time to analyze.