Is this China’s chance to shine as US debt-ceiling impasse raises global fears?

US debt debacle seen contributing to a relative rise in China’s status, while a failure to reach a deal in Washington would ‘cause significant volatility’

Foreign investors could be finding that Washington’s image has been tainted by the US-China trade dispute, along with ‘violations’ of World Trade Organization rules

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Negotiations this month in Washington are intended to work out a budget-spending deal that would push sceptical lawmakers to allow raising the debt ceiling as soon as June 1. Photo: AFP

Published: 1:00am, 19 May 2023Updated: 1:49am, 19 May 2023

China’s on-again, off-again image as a destination for foreign investors may brighten in the coming weeks as debt-ceiling talks in Washington fan global worries about the stability of US assets, according to economists.

Even if President Joe Biden and the US Congress reach a deal that raises the current US$31.4 trillion debt ceiling and thwarts an international credit crisis, their tense negotiations paired with other news from Washington could make China look relatively attractive, some analysts contend.

“The global financial crisis of 2008-10, the US withdrawal from the Trans-Pacific Partnership (TPP) … and now the US debt-ceiling debacle, have contributed to a rise in China’s status, relative to the United States,” Marcus Noland, a senior research staffer with the Peterson Institute for International Economics, said in a May 12 commentary.

The TPP is an 11-member country Pacific Rim trade deal, which the US exited in 2017 before it was finalised. Quirks in US lending rules precipitated the financial crisis.

Negotiations this month in Washington are intended to work out a budget-spending deal that would push sceptical lawmakers to allow raising the debt ceiling as soon as June 1, the date when the treasury says the US could start defaulting on commitments.

The now five-year-old US-China trade dispute, along with “violations” of World Trade Organization rules, further taint Washington’s image overseas, Xiao Yu, an assistant researcher with the Institute of Asia-Pacific and Global Strategy under the Chinese Academy of Social Sciences, wrote in a May 12 commentary for the China-based 21st Century Business Herald.

China became a hotspot for foreign investors in the 1990s, tracking domestic economic reforms. Costs of land and labour have crept up, however, and China’s image lost a bit of lustre amid its strict Covid-19 controls. A two-year crackdown on the private sector further hurt investor confidence.