China's US debt load 'poses no threat'
Pentagon in first-ever security assessment of Treasury securities held by Beijing
China's holdings of more than US$1 trillion in US debt and the prospect that it might "suddenly and significantly" withdraw funds do not pose a national security threat, according to a first-ever Pentagon assessment.
"China has few attractive options for investing the bulk of its large foreign exchange holdings out of US Treasury securities," given their extent, according to the report.
China is the second-largest holder of US government debt after the Federal Reserve. Acting at the direction of Congress, the defence department studied the rationale behind the investments and whether "the aggressive option of a large sell-off" would give China leverage in a political or military crisis. China's debt holdings have been cited as a sign of US vulnerability by Republicans in this year's election campaign.
"Does the America we want borrow a trillion dollars from China? No," Mitt Romney said last month in accepting the presidential nomination at the Republican convention.
China's holdings of US government securities were US$1.164 trillion as of June, according to the treasury department. China has increased its holdings this year, as the US economy stalled and Europe's sovereign-debt crisis deepened.
Chinese commentators have occasionally suggested using the debt holdings to pressure the US on its pro-Taiwan policies.
A senior People's Daily editor wrote in an editorial in August last year that "now is the time for China to use its 'financial weapon' to teach the US a lesson if it moves forward" with additional arms sales to the island democracy, according to the Pentagon report.
"Attempting to use US Treasury securities as a coercive tool would have limited effect and likely would do more harm to China than to the United States," according to the report, which was sent to congressional committees by Secretary of Defence Leon Panetta.
"As the threat is not credible and the effect would be limited even if carried out, it does not offer China deterrence options" in a diplomatic, economic or military situation, the Pentagon found.
The Pentagon consulted the Treasury and State departments and the director of national intelligence in compiling the report, a Pentagon spokesman said.