As the U.S. financial industry suffered the biggest turmoil since the 1930s, rumors spread that the Chinese government, which holds about $1 trillion of U.S. debts, had ordered state-owned banks to stop buying American bonds. Although the Chinese government immediately dismissed the rumors, and reaffirmed its confidence in the United States, the rumors are sending out a clear signal: this time, China won’t be a willing rescuer of the United States.
The Bush administration predicted that the federal government’s deficit of the next fiscal year, starting in October, will stand at a historic high of nearly $500 billion. And adding the new $700 billion bailout plan, the United States’ public debt ceiling will be raised to $11.3 trillion from $10.6 trillion. With its vault empty, the administration has to hit up such countries as China and Japan. China, holding the world’s largest foreign reserves of $1.8 trillion, might be the first country Treasury Secretary Henry Paulson will visit for money.
In fact, the Wall Street Journal has reported that pressure from China played a role in the U.S. government’s bailout of Freddie Mac and Fannie Mae, the two giant government sponsored enterprises. The two mortgage companies owe China more than $200 billion. By bailing them out, the United States is showing China that the U.S. government is standing ready to guarantee its debt.
Ying Zhao worked in China as a business reporter before she came to the United States in 2006. She covered Silicon Valley for the China Business News, a Shanghai-based newspaper. She is now studying business journalism at the Graduate School of Journalism at the City University of New York.
