Shanghai - The US government shutdown had exposed “the ugly side of partisan politics” in Washington, China said yesterday, expressing concern about its effect on the world economy.
An editorial on the state-run Xinhua news service, which is considered a channel for Beijing’s official views, said: “The US… has engaged in irresponsible spending for years.”
The commentary said the shutdown might lead to the US failing to meet its debt obligations, referring to a similar conflict in 2011 over raising the government’s debt ceiling.
While a default was ultimately averted, that crisis resulted in Standard & Poor’s downgrading the rating of US sovereign debt.
“In view of the latest political failure, a replay of the 2011 summer drama seems likely, which is certainly a concern for US foreign creditors,” it said.
China is the largest single holder of US government debt, a side effect of its managed exchange rate policy, which requires it to purchase massive sums of dollars from Chinese companies to prevent the yuan from appreciating. Its foreign exchange reserves stood at $3.58 trillion (R36 trillion) in the third quarter.
The policy of buying up US government debt has been increasingly criticised at home, given the relatively low yields on the debt and the fact that the relative value of Chinese holdings has decreased as the Federal Reserve has poured cash into money markets through its quantitative easing policy, putting downward pressure on the value of the dollar.
The yuan has continued to appreciate this year, both in absolute and trade-weighted terms, causing domestic concerns that the Chinese currency’s strength, in particular in relation to neighbouring currencies, will damage China’s export competitiveness even as its economic trajectory remains uncertain.
Beijing has made moves to liberalise its currency, in part to focus more on domestic consumption, but most mainstream economists believe exports will continue to play a critical role for years to come.
The US shutdown went into its second day yesterday, with no end in sight. - Reuters