(Bloomberg) – China invoked U.S. tightrope policy over its own debt limit as it hit back at Treasury Secretary Janet Yellen’s criticism of Beijing’s handling of debt problems in the developing countries.
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The criticism came from the Chinese Embassy in Lusaka, Zambia on Monday, which lambasted the United States for its “catastrophic debt problem” and accused it of “sabotaging” other nations’ efforts to resolve debt problems.
Noting that the Treasury began taking extraordinary measures to meet its obligations after the U.S. government reached its borrowing limit, the embassy said “the greatest contribution the United States can make to the problems of the debt outside the country is to act on responsible monetary policies, to deal with its own debt problem, and to stop sabotaging the active efforts of other sovereign countries to solve their debt problems.
The sharp words contrast with a recent easing of tensions between China and the United States, which began in November after the two countries’ leaders met face to face for the first time in years. They also follow discussions last week between Yellen and his counterpart, Liu He, which both sides described as constructive and positive.
The Treasury measures give it space for a few months before it runs out of cash. Economists and bond market analysts predict the ceiling will need to be raised during the third quarter to avoid a US default, which would be economically damaging to the world’s largest economy and the global financial system.
Republicans who control the House intend to use the debt ceiling deadline as leverage to extract deep spending cuts from the White House and congressional Democrats. President Joe Biden’s position is that American credit is too big to trade.
China holds about $870 billion in US debt, according to the latest data from November, compared to more than $1.3 trillion at the end of 2013. China’s stock – the largest behind Japan’s – has fallen for the third consecutive month, reaching the lowest level since June 2010.
China has become the world’s largest creditor to developing countries, some of which are facing a growing debt crisis. The Group of 20 nations has set up a so-called common framework that brings together the Paris Club of wealthy traditional debtor countries with China to try to restructure the debts of low-income countries on a case-by-case basis.
The debt burden
China has been criticized for its perceived lack of commitment to a global effort to reduce the debt burden of developing countries, with Yellen repeatedly saying that Beijing has become the biggest obstacle to progress.
She reiterated the call on Monday for Zambia, which is Africa’s first sovereign defaulter in the pandemic era in 2020, and since then has struggled to reorganize external debt which has topped $17 billion, including more than a third is held by Chinese creditors.
“Assuming Secretary Yellen’s statements on debt are correct, the best prospect for debt problems outside the United States would be for the United States Treasury Department to resolve the United States domestic debt problem, given of his knowledge of the facts, his professional ability and the implementation of his team’s ability,” the Chinese Embassy in Lusaka said.
For the United States, the most awkward confrontation with the debt ceiling came in 2011, when S&P Global Ratings was alarmed enough to lower the US sovereign rating from AAA. The move rattled markets and ended up hurting consumer confidence, hurting the economic recovery from the credit crunch.
At the time, China’s state-run Xinhua news agency criticized the United States’ handling of the debt situation, calling Washington’s policy “dangerously irresponsible”.
The rare harsh criticism leveled at Yellen this week cast a shadow over hopes that China might back away from its so-called Wolf Warrior approach raised by the transfer of a senior diplomat closely associated with the more divisive change in the Ministry of Foreign Affairs. foreign in recent years.
–With help from Christopher Anstey.
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