HONG KONG — When the United States government was borrowing heavily four years ago to cover costs related to the global financial crisis, Wen Jiabao, then the prime minister of China, strongly and publicly warned Washington to make sure that Chinese investments in Treasury securities were safe.
When Congress and the White House faced off two years ago over increasing the ceiling on the United States’ debt, raising worries about a possible default, Chinese Internet users poured scorn on their own government for having invested so much of their country’s savings in Treasuries.
The current 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. A round of negotiations at the White House ended with no agreement Thursday evening.
The Chinese media have actively covered the standoff, 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 in past budget struggles in Washington. China’s top leaders have stayed silent in public, but Prime Minister Li Keqiang raised the issue briefly in private with Secretary of State John Kerry on the sidelines of a meeting in Brunei on Thursday, according to an American official and Chinese state media.
“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 specializes in Chinese-American relations. “The Chinese people are also getting used to it.”
Stock markets in Asia have been mostly resilient over the last week, with a mixed performance on Thursday and rising on Friday morning. But 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, the founder and managing director of Emerging Alpha Advisors, an asset management and advisory firm in Hong Kong that specializes in fixed-income markets and private equity. “Nobody believes it will happen.”
Mr. Mays predicted that Washington would find a way to avoid a debt default. “There are lots of accounting tricks, and just because the federal government is not good at accounting does not mean it can’t be done,” he said.
The same view is prevalent in Singapore and Tokyo. “The prospects of the U.S. not making payments on Treasury securities are effectively zero,” said Thomas Lam, the chief economist for industrialized nations at OSK-DMG, a Singapore investment bank and brokerage firm.
“This time, people are not so concerned with the default risk compared to 2011,” said Hajime Takata, the chief economist at the Mizuho Research Institute in Tokyo. “At that time, the U.S. economy was very weak and everybody was seriously worrying about the default. The U.S. economy has been recovering since then, so they are not seriously worrying.”
The Hong Kong futures market took a step on Thursday to make it more expensive and less attractive to use Treasury bills to underpin bets here on futures contracts. The market announced that Treasury securities with a maturity of less than a year would be accepted as margins for futures contracts only with a discount of 3 percent to their value, compared with a previous discount of 1 percent.
The move has the effect of insulating the market somewhat from the effects of any possible delay in interest payments by the United States in the coming weeks. But Hong Kong Exchanges and Clearing Limited, which operates the market, took pains Thursday evening to say that it was not predicting a default.
“The additional risk management measures don’t indicate HKEx’s expectation on the likelihood of a possible U.S. default,” Hong Kong Exchanges said in an e-mail statement. It did not increase the discount for longer-term Treasuries.
China’s holdings of Treasury securities are still large at $1.28 trillion in July and growing slowly, but they have shrunk in macroeconomic significance, Treasury figures show. China’s holdings represented 10.7 percent of all publicly held Treasury securities in June, excluding those held by other United States government agencies.
That was down from a peak of 13.4 percent two years earlier, in July 2011. China has been buying corporate securities and other countries’ bonds for its reserves, while American borrowing has also been growing.
Japan is the other big holder of Treasury securities, with $1.14 trillion in July, or 9.1 percent of publicly held Treasuries, in June.
Asian financial officials are still urging the United States to honor its financial obligations. “The U.S. must avoid a situation where it cannot pay, and its triple-A ranking plunges all of a sudden,” the Japanese finance minister, Taro Aso, said on Monday. “The U.S. must be fully aware that if that happens, the U.S. would fall into fiscal crisis.”
Zhu Guangyao, one of China’s four vice ministers for finance, said on Monday that “safeguarding the debt is of vital importance to the economy of the U.S. and the world.”
Mr. Zhu specializes in financial relations with the United States, but the choice of him to discuss the subject at a Foreign Ministry briefing in Beijing on Monday 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 Southeast Asia over the last week. Mr. Li did broach the subject on Thursday with Mr. Kerry to express concern, but he chose to do so in private. A senior State Department official, who insisted on anonymity because of diplomatic sensitivities, said that Mr. Kerry had “reaffirmed the president’s commitment to resolving the issue.”
Mr. Wen, the former prime minister, had been much more outspoken in March 2009. He said then: “We have lent a huge amount of money to the U.S. Of course, we are concerned about the safety of our assets. To be honest, I am definitely a little worried.”
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 United States, 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 $1 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 industrialized countries or moved to other developing countries.
But the Chinese government could not easily explain this to its people. It was also facing periodic criticisms from the United States for not allowing faster currency appreciation. So the Chinese government has said fairly little of late about its huge holdings of Treasuries.
This autumn’s standoff in Washington has aroused considerably less concern on the Chinese Internet than previous squabbles. One posting on Sina Weibo, a popular Chinese microblogging site, even dismissed the seriousness of the United States being late on an interest payment in the coming weeks, saying that China would get its money eventually.
“To default is just to delay the remittal of this money, but it’s not going to become bad debt,” said the posting.
A bigger concern for the export-dependent Chinese and Japanese economies would be an economic downturn set off by a United States debt default or even a close flirtation with default, as the Obama administration has warned. That could cut American demand for Chinese and Japanese goods.
“People believe there is a low chance the default happens,” Mr. Takata said in Tokyo. “But there will be significant damage if it really happens.”
Source: http://www.nytimes.com/2013/10/11/business/international/standoff-on-debt-has-yet-to-rattle-asia.html?n=Top/Reference/Times%20Topics/People/B/Bradsher,%20Keith?ref=keithbradsher&pagewanted=print
