China Debt Threat

The Washington Times (Washington, DC), March 3, 2011 | Go to article overview

China Debt Threat


Byline: Bill Gertz, THE WASHINGTON TIMES

CHINA DEBT THREAT

U.S. intelligence agencies are working on a major strategic assessment of the national security dangers posed by China's large-scale holdings of U.S. debt, according to people close to the inquiry.

The assessment will include an examination of the impact of what has been called Beijing's financial nuclear option - the calling in of its debt holdings as a way to punish the United States.

That option was discussed last year by Chinese military officials angered by continued U.S. arms sales to Taiwan. The threat was dismissed by a State Department spokesman as hollow because China would be harming its interests by the action.

A spokesman for the office of the director of national intelligence declined to comment.

Word of the assessment comes amid reports that U.S. debt holdings by China are exploding.

Revised Treasury Department figures released earlier this week show that China's debt holdings are nearly a third larger than originally known.

In June 2010, China's estimated holdings of security assets were valued at $1.611 trillion. The holdings for June 2009 were $1.464 trillion.

Chinese Maj. Gen. Luo Yuan told state-run media a year ago, in response to U.S. arms sales to Taiwan, that China could attack by oblique means and stealthy feints, including using economic means, such as dumping some U.S. government bonds.

A State Department cable from Beijing in October 2008 also reveals a subtle Chinese government threat related to China's U.S. debt holdings.

Liu Jiahua, deputy director of the Chinese State Administration of Foreign Exchange, told a U.S. official that the recent U.S. announcement of another arms sale to Taiwan made it more difficult for the Chinese Government to explain its policies supportive of the U.S. to the Chinese public.

Secretary of State Hillary Rodham Clinton, in another cable, was quoted as explaining the difficulty of pressing China's communist government.

How do you deal toughly with your banker? she asked.

The Pentagon, too, is studying the possibility of economic warfare by China. It held a war game in 2009 involving financial weapons such as stocks, bonds, currencies and gold reserves, and reports of the exercise indicated that China won.

Paul Bracken, a Yale University professor who took part in the war game, said it was held because the Pentagon had a sense that something important was going on that was being looked at in a narrow way by economists.

They sought a broader assessment, Mr. Bracken said. It was a very important game because for the first time, it pulled together the financial system, military force and politics. The interrelationships were stress-tested and gave some important insights. One of them was this: In a multiplayer game - U.S., China, Russia, Japan - the strongest player, the U.S., doesn't always win.

KANDAHAR BLAST AVERTED

In the underreported news department, U.S. and Afghan troops in Kandahar successfully thwarted a Taliban car bombing this week after finding an explosives-laden vehicle amid a large cache of weapons.

The car bomb had been rigged with nearly 100 pounds of high explosives intended for a mass-casualty terrorist bombing in the Taliban stronghold, where U.S. and allied troops have made a major stand in efforts to defeat the insurgency.

The cache was discovered during a foot patrol in Kandahar city on Tuesday.

The caliber and quantity of the weapons makes this a substantial find going into the spring offensive, said U.S. military spokeswoman Army Maj. Sunset Belinsky.

The key find, she said, was a fully constructed vehicle-borne IED, or improvised explosive device, along with 15 heavy machine guns with ammunition, five rocket-propelled grenade launchers with 200 new rounds, and nearly 20,000 pounds of ammonium nitrate, a key chemical used in explosives. …

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