The United States and Europe must summon the political courage to defuse their debt woes or global economic recovery will be threatened, Chinese official media said on Monday, reflecting the pressures on Beijing with its big stash of dollar assets.
A commentary in the People's Daily newspaper, the chief mouthpiece of China's ruling Communist Party, said the troubles facing the United States and European Union grew out of the political dysfunctions of the Western democracies.
It must be understood that if the U.S., Europe and other advanced economies fail to shoulder their responsibility and continue their incessant messing around over selfish interests, this will seriously impede stable development of the global economy, the paper said.
People have deepening misgivings about the political decisiveness of the Western nations, and this has also seriously hurt global investors' confidence in world economic recovery, exacerbating market turmoil.
Such media comments do not amount to a definitive response from China's top leaders, who may tread a more careful public line, knowing that their comments could stoke market alarm.
Beijing officials have so far been publicly mute about the blow to Washington after Standard and Poor's stripped the United States of its top-tier AAA credit rating on Friday. But state-run media have decried the potential damage to China's growth and huge holdings of U.S. treasury assets.
The critical media comments lay bare the pressures weighing on policy-makers handling China's huge holdings of dollar assets, said Yuan Peng of the China Institutes of Contemporary International Relations, a government think tank.
This will certainly have an adverse impact on China, because it is the biggest foreign owner of U.S. treasury debt, and this will affect the security of that debt, raise more questions about it, said Yuan, speaking of the downgrade.
For China, this is a challenge, because it suggests our holdings of U.S. assets aren't as safe as they were, and the government also needs to explain itself to the people.
Nowadays, the Chinese government also faces pressure from the media and public opinion.
WARNING ON EXPORTS
The official Xinhua news agency warned Washington against seeking to boost exports and growth by letting the dollar weaken, a move that would lower the value of Beijing's vast holdings of U.S. dollar assets.
China owns the world's biggest stockpile of foreign exchange reserves at $3.2 trillion, and is also the biggest foreign buyer of U.S. Treasuries. Analysts estimate about 70 percent of its reserves are invested in dollar assets, including Treasuries, although the exact investment mix has not been disclosed.
From this point, the U.S. has every motive to maintain a weak dollar, said an English-language commentary from Xinhua.
Before the U.S. makes any move, please remind it: don't forget your responsibility as the issuer of reserve currency to maintain the stable value of the dollar.
A weaker dollar could impede global economic recovery by stoking turmoil in financial markets and lifting the prices of dollar-denominated commodities, said Xinhua.
The People's Daily commentary said the recent turmoil was driven by Washington politics, not economic fundamentals.
What has been pushed to the edge of the precipice is not the global economy, but Washington politics, said the commentator, writing under a pen name Zhong Sheng, which means the voice of China. That pen name is sometimes used for commentaries reflecting higher level opinion.
Only if the Western nations stop wantonly shirking responsibility and take out a sharp blade of determination and courage to cut through their fetters, strengthening policy coordination with developing countries, then the global economy has hopes of taking a path of stable recovery.
On Monday, the Australian Treasurer Wayne Swan criticised China over its media criticism of U.S. debt addiction, calling the comments unhelpful.
The Chinese Foreign Ministry, central bank and other government agencies have not publicly commented on the U.S. debt downgrade and have not answered faxed questions.
(Reporting by Chris Buckley; Editing by Ron Popeski)