07/15/2011, 00.00
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Beijing warns Washington, a default would be a “disaster” for everyone

China is the largest holder of US sovereign debt with more than US$ 1.1 trillion. However, the possibility of a default is increasing. If the White House and Congressional Republics do not find a solution, the world’s economy could be hit hard.
Beijing (AsiaNews) – The United States must protect "the interests of investors” and Republicans must stop "playing with fire", Chinese government officials said with regards to the debate in the United States over that country’s debt. In fact, 2 August and the spectre of a US default are approaching and the consequences for the world economy are unimaginable.

At present, China hold US$ 1.153 trillion worth of US treasury bonds and is by far the largest investor in US debt. A default would endanger Sino-US relations, especially in view of China’s huge industrial capacity, which is heavily dependent on the US market.

Meanwhile in Washington, two views on how to avoid default are fighting it out. Congressional Democrats and President Obama want to raise taxes on the rich and corporations and cut military spending. Republicans want instead to force the federal government to cut spending to reduce costs, like those for health care and unemployment benefits.

In the absence of an agreement, some Republicans have proposed a “technical default”, a gimmick used by some South American nations to allow a temporary but predetermined default on a country’s foreign debt, which would stop interest payments to investors. Some in the United States now see this as a possible solution, one that would be disastrous for China however.

"We hope the US government adopts responsible policy and measures," Foreign Ministry spokesman Hong Lei told a briefing.

Yu Bin, a senior official with the ministerial-level State Council Development Research Centre, said that China has become conscious that the US economy was "worse than expected", that “The US economy is a worry,” and that Washington must get its house in order.

Tensions are high in the United States as well. The existing debt ceiling of US$ 14.3 trillion (as required by law) must be raised. For US Treasury Secretary Timothy Geithner, the time to act is now.

Speaking before a Senate committee, US Federal Reserve Chairman Ben Bernanke said that the economy would face “calamity” if an agreement were not reached.
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