Standoff over US debt ceiling barely on the register in Asia
There is a general feeling things aren't as bad as they were in 2011, writes Keith Bradsher.
When the US government was borrowing heavily four years ago to cover costs related to the global financial crisis, Wen Jiabao, then premier of China, publicly warned Washington to make sure Chinese investments in Treasury securities were safe.
When Congress and the White House faced off two years ago over increasing the ceiling on US debt, raising worries about a possible default, Chinese internet users poured scorn on their government for having invested so much of their country's savings in Treasuries.
The present round of brinkmanship between Republicans in Congress and the White House over avoiding a default on the national debt has led to considerably less hand-wringing in China or across Asia, although there were signs this week that this was starting to change.
The Chinese media have actively covered the stand-off, and a vice-minister of finance expressed concern about it on Monday, but the Chinese internet has not lit up with the same energy as during past budget struggles in Washington.
China's leaders have stayed silent in public, but Premier Li Keqiang raised the issue briefly in private with US Secretary of State John Kerry on the sidelines of the ASEAN summit in Brunei on Thursday.
"We understand this is a crisis, but we think they will work out a deal," said Sun Zhe, a politics professor at Tsinghua University who specialises in Chinese-American relations. "The Chinese people are also getting used to it."
Sharemarkets in Asia have been mostly resilient over the last week and there has been little sign of investors moving out of dollars and into yen or other Asian currencies as interest rates on short-term Treasury bills rise.
"The media is trying to get people interested in the possibility of a debt default, and the market isn't interested," said Marshall Mays, at Emerging Alpha Advisors, an asset management and advisory firm in Hong Kong. "Nobody believes it will happen."
Mays predicted that Washington would find a way to avoid a debt default.
"This time, people are not so concerned with the default risk compared to 2011," the chief economist at the Mizuho Research Institute in Tokyo. Hajime Takata, said. "At that time, the US economy was very weak and everybody was seriously worrying about the default. The US economy has been recovering since then, so they are not seriously worrying."
China's holdings of Treasury securities are still large at $US1.28 trillion in July and growing slowly, but they have shrunk in macro-economic significance, Treasury figures show. China's holdings represented 10.7 per cent of all publicly held Treasury securities in June, excluding those held by other US government agencies.
That was down from a peak of 13.4 per cent in July 2011.
Japan is the other big holder of Treasury securities, with $US1.14 trillion in July or 9.1 per cent of Treasurys.
Asian financial officials are still urging the US to honour its financial obligations. Zhu Guangyao, one of China's vice-ministers for finance, said "safeguarding the debt is of vital importance to the economy of the US and the world".
Zhu specialises in financial relations with the US, and him being chosen to discuss the subject at a Foreign Ministry briefing in Beijing was the latest sign of China's reluctance to raise the ante. President Xi Jinping said little about the debt dispute and government shutdown during his tour of south-east Asia over the past week.
Former prime minister Wen had been much more outspoken in March 2009. He said then: "We have lent a huge amount of money to the US. Of course, we are concerned about the safety of our assets."
That outspokenness fed a spiral of concern on both sides of the Pacific several years ago about America's reliance on Asia, particularly China, to buy Treasury securities. In the US, that led to warnings from politicians about the geopolitical dangers of such dependence.
But playing up worries backfired for China's leaders, as internet users in their own country began asking why their government had spent more than $US1 trillion buying Treasury securities if there had been a risk of default. By 2011, Chinese censors were busily erasing numerous postings that raised questions about why China's central bank had spent so many renminbi to buy dollars.
The central bank made the purchases to slow the renminbi's rise in value against the dollar. This preserved a competitive advantage for Chinese exports and helped China gain or retain millions of jobs in export-related industries that might otherwise have remained in industrialised countries or moved to other developing countries.
A bigger concern for the export-dependent Chinese and Japanese economies now would be an economic downturn set off by a US debt default or even a close flirtation with default, as the Obama administration has warned. That could cut US demand for Chinese and Japanese goods.
"People believe there is a low chance the default happens," Takata said. "But there will be significant damage if it really happens."