China urged Washington to protect the interests of investors, after ratings agency Moody’s placed the United States’ triple-A debt rating on a downgrade watch.
China is by far the top holder of US debt, with holdings at US$1.153 trillion in April according to US data, and has raised concerns about its investment in the past.
His comments came after Moody’s Investor Service warned Wednesday it could downgrade the United States’ triple-A rating because of rising prospects the US debt limit will not be raised in time to avoid default.
Republicans are refusing to lift the country’s US$14.29 trillion debt ceiling without deep government spending cuts, while they reject Democrats’ demand that tax increases must be part of any sweeping deficit reduction plan.
A downgrade could sharply raise US borrowing costs, worsening the country’s already dire fiscal position, and send shock waves through the financial world, which has long considered US debt a benchmark among safe-haven investments.
China has in the past raised worries that the massive US stimulus effort launched to revive the economy after the global downturn would lead to mushrooming debt that erodes the value of the dollar and its Treasury holdings.
Beijing had been cutting its holdings of US Treasuries for five months in a row until March. The figure only increased slightly in April from US$1.145 trillion in the previous month, US data showed.
The dollar was also lower after Federal Reserve chairman Ben Bernanke told legislators Wednesday that the central bank was “prepared to respond” if stimulus was needed to kickstart the ailing US economy.