As the world contemplates the prospect that the United States might, for the first time, default on its debt, few countries have more to fear from the potentially calamitous consequences than Asian giants China and Japan. They are the two largest US creditors, holding nearly $2.5 trillion in US Treasury bonds between them. They are also the second and third largest economies in the world, with much to lose from the collapse of world trade that experts warn could follow a default-induced freeze in global credit markets. The governor of the Bank of Japan, Haruhiko Kuroda, warned that a default could hinder Japan’s economic recovery after two decades of stagnation. “If this [budget deadlock] continues for a long time, it could destabilize financial markets and worsen sentiment,” Mr. Kuroda told reporters in Tokyo Friday. China: A devaluation would eat into the value of Beijing’s investments in US Treasury bonds, which stood at $1.28 trillion last July, according to the US Treasury. “That would be a big problem for my country,” says Huang Weiping, professor of Economics at Beijing’s Renmin University. “A default would be a very great shock to the world economy,” says Huang. “China’s position in the world economy means it would also be a great shock to its economic development, especially to its trade and investment.” The psychological shock of a default, however, could lead to major changes in the longer term, predicts Xiang Songzuo, chief economist at the state-owned Agricultural Bank of China. “Even a temporary default would have a very deep impact on the Chinese authorities’ thinking” about the creditworthiness of the US government, Mr. Xiang believes. And while diversifying official investments might be hard, given the continuing crisis in the eurozone and poor returns in risky emerging markets, a US default might lead China to buy American companies instead of American bonds, Xiang suggests. csmonitor/World/Asia-Pacific/2013/1008/US-debt-ceiling-How-risky-for-China-and-Japan
Posted on: Wed, 09 Oct 2013 03:50:29 +0000
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