China’s Young Tired of Financing American Consumption

Some in China ready to drop its U.S. holdings and pour money into nation

By Jim Landers|Dallas Morning News

BEIJINGChina’s young bankers and budding economists are part of a wired, frustrated generation looking for their inheritance.

They’ve enjoyed the savings of their parents to get this far. Now they are looking to collect their due from another source – the money China has loaned to the United States.

The Council on Foreign Relations estimates that China holds at least $1.4 trillion of U.S. debts, plus $231 billion in corporate bonds and equity. That amount works out to a loan of roughly $4,500 to every American.

This debtor-lender relationship between America and China is a “financial balance of terror,” as White House adviser Lawrence Summers once put it. If China sold its dollar holdings, U.S. borrowing needs are so great that the sale could cause a spike in interest rates and push America back into recession.

But if the U.S. decided to cover its debts by printing more money and pushing up inflation, China’s investments could drop in value by hundreds of billions of dollars.

Each side worries about the other’s intent.

“These large [holdings], in my opinion, are not worth it,” said Tang Zhe Zhe, a 25-year-old financial journalist with Caijing.com.cn, an Internet magazine.

“Maybe there are some diplomatic situations where it’s nice to have them in negotiating with the U.S. government,” she said. “But maybe they should invest them in our own country.”

The U.S. government doesn’t have much choice. Domestic savings aren’t enough to cover the huge federal budget deficits. And America’s trade deficit forces the country to borrow abroad to cover the amount sent overseas to pay for imports.

Some Chinese capital is flowing into private U.S. companies and projects rather than government debt. Dallas investor Cappy McGarr is working with some big state-owned Chinese firms to build a $1.5 billion West Texas wind energy farm.

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