<em>Illustration by John Shakespeare</em>

Illustration by John Shakespeare

China's harsh reaction to America's debt problem tells us nothing new about the US, but it's quite revealing about China.

"The alarm has rung," said an English-language commentary yesterday by the state-run and party-directed Xinhua news agency. "It is time for the naughty boys in Washington to stop chicken games before they cause more damages."

China has always been quick to denounce others from criticising its conduct as "interference in the internal affairs" of a sovereign state.

Yet China is the biggest single creditor to the US government; it has $US1.2 trillion invested in US government bonds. They're US bonds, but paid for with Chinese money. No one will dispute Beijing's right to be critical on this.

"China," said the Saturday editorial by Xinhua, "has every right now to demand the US to address its structural debt problems and ensure the safety of China's dollar assets." Quite right.

The US ratings agency Standard & Poor's said it was downgrading the creditworthiness of US government bonds in part because America's "policymakers don't have the ability to put the public finances of the US on a sustainable footing".

This would make any investor angry. In this sense, China's leaders are merely joining the chorus of 72 per cent of Americans who, according to Pew Research, are critical of the US political system's handling of its debt ceiling.

But there are four features of China's reaction that mark it out.

First, it's the toughest criticism the potential superpower has yet made of the existing superpower.

Second, the criticism goes beyond an expression of concern for China's money. It prescribes what the US should do with its money. In an editorial which China scholars said could only have been published with the consent of the national leadership, Xinhua said the US must cut its "gigantic military expenditure and bloated social welfare costs".

This takes the Chinese attack well into the realm that, according to its own standards, would qualify as "interference in the internal affairs" of a sovereign state.

Pressing its advantage in America's moment of vulnerability, China said: "International supervision over the issue of US dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country."

Suggesting that America had lost the right to issue its own currency, something that even the lousiest regimes on earth do, is sheer cheek.

"What we are seeing here," says Hugh White, a strategic studies expert at the Australian National University, "is a much more strident tone than anything we have seen before".

So far, all of this commentary is published in English. But there is another level of Chinese reaction that has been invisible to English speakers.

"There's a real difference between the Chinese domestic propaganda and the foreign propaganda on this," observes a sinologist from the University of Canterbury in New Zealand, Anne-Marie Brady. "The tone it's adopting towards the US in English is, 'We're telling off America.' In Chinese, it is much more crowing and gloating."

The heading on the lead article in Xinhua's Mandarin version translates as, "The world will never trust America again," Brady says, "which is fairly heavy stuff.''

In the famous strategic guidance he gave his comrades in the Communist Party, the father of China's modernisation, Deng Xiaoping, said: "Hide your strength, bide your time, and do what you can."

Brady says: "In the last 10 years, particularly since the financial crisis hit in 2008, there's been a shift towards the last part, 'do what you can'," in the behaviour of the Chinese leadership.

"That's code for standing up for China's interests. But this is looking to be beyond that. It's quite harsh."

It's also pretty brave of China to make the boast that US government debt, which, on its new, lower assessment from Standard & Poor's, is rated AA+, is untrustworthy. Because the same agency rates Chinese government debt as A+, which is three rankings lower. And this leads to the third feature of China's criticism: its potential effect.

"It's probably pretty hard for the Chinese to resist the temptation to gloat," White says, "but from the US point of view, this would confirm US anxieties about China.

"China wants to end up on top," White suggests, "but the secret is to exercise great patience. This tells the US that China is out to get them. Nothing would galvanise the US to get its act together better than the sense that China is out to eat their lunch. Strategically, gloating is unwise."

Finally, Beijing's critiques of the US include several admonitions for America to solve the structural problem of its deficits and to end its reliance on "the deep pockets of major surplus countries". Chief among these, of course, is China.

This raises the question of China's role - because China is the yin to America's yang, the surplus to its deficits.

The global financial crisis starkly illuminated the fact that while America habitually over-consumes, China habitually under-consumes. Where the US saves too little, China saves too much. It is obscene that a country with as many poor people as China should have amassed $3.2 trillion in foreign exchange reserves, the biggest treasure store the world has ever known.

In 2009, China formally acknowledged its responsibility to correct this "structural imbalance" in the global economy. That would include allowing higher wages, more domestic spending and a better welfare system. It should also include a stronger Chinese currency, improving the purchasing power of the Chinese people. All of this would improve living conditions in China and rebalance the world economy but it would also prove disruptive to China's employers. And the biggest of those is the government itself.

"It's clear that China has to rebalance, and it's clear that the rebalancing will be painful,'' Michael Pettis, a professor at Peking University, told the Wall Street Journal yesterday. It's also clear that China has been making painfully slow progress in this task. None of its commentary yesterday made any mention of this agenda.

It is no doubt easier, and much more fun, for Chinese officialdom to rejoice in America's woes than to confront the difficulties in fixing its own.


35 comments so far

China is just starting to do the gloating that the US has specialised in for the last sixty years. You must allow them just a brief opportunity to return the favour. After all, the US has been telling the Chinese how to run their economy and country for just about that entire period. Indeed the US did attempt, during the Revolution, to prevent the present regime from coming to power, by intervening in a civil war that had nothing to do with them. Admittedly so did the USSR as the other hegemon of the time, but it has now disappeared as all hegemons do eventually. The US is now going through the same painful process.

lesm | Balmain - August 09, 2011, 8:44AM

Not being financially well versed, does China's fixing of its currency have anything to do with this?

Richie | Brissie - August 09, 2011, 8:47AM

I was in Asia during the Asian Financial Crisis in 1997 which devastated many Asian countries. Ordinary citizens in Korea were donating their personal gold to their Govts to help save their country.

Then big and powerful USA and some other Western countries were going Asia and telling them how stupid and irresponsible they were in managing their countries.

Furthermore IMF at the behest of USA were imposing harsh penalties on Thailand, S Korea and Indonesia. Malaysia stopped the convertibility of its currency and remains so even to today.

Should China and other Asian countries now say something serious to USA which now hold trillions of their foreign reserves?? These countries still do not have enough votes in IMF to get IMF to impose stringent policies on USA to get its house in order.

Dr B S Goh | Australian in Asia - August 09, 2011, 8:47AM

Has only accelerated the inevitable.

Sydney - August 09, 2011, 8:53AM

Australia needs to protect its own national sovereignty against Chinese interference in our domestic affairs. Allowing Chinese state owned and controled corporations to own large sectors of our resource and primary industries is creating conditions conducive for future Chinese intervention.

SteveH. - August 09, 2011, 8:55AM

I want to know whether Peter wrote the article after his usual briefing session with the American Embassy. I cannot recall Peter ever wrote that other countries should not be "gloating" when they criticized China.

Castlecrag - August 09, 2011, 8:59AM

Ahhm, it isn't China collapsing before our eyes ... maybe you might try to find the message in that?

Peter | Melbourne - August 09, 2011, 9:01AM

It is easy for the Chinese to posture with such arrogance - $3 trillion in surplus and foreign aid being used to fund the reforms that would underpin the necessary domestic rebalance. Perhaps the Chinese should recognise that it's system still rests on the foundations of ALL its people, including the half billion plus who are largely disenfranchised and living in squalid poverty. Aside from telling the Americans to lift it's game the Chinese might like to introduce the notions of honesty, integrity, accountability and transparency into its internal debate and stop exploiting the weakest (and not just in China) in order to strut the international stage as if it alone is the basis of all that is good and that the rest of us are the cause of the bad. Ooops, I have forgotten that common rubric of achievement and greatness - China invented everything and it is now simply reclaiming the rightful mantle of the "Middle Kingdom" - you know the one, that which traverses the void between heaven and earth.

Observer | Narrabundah - August 09, 2011, 9:04AM

Hartcher's years in Japan should be a good starting point to see where this is all going. During the 1980s - and especially after the the 87 crash - Japan thought its economy was special and would not be subject to same pressures that all economies face as they mature and fail to reform.

China will be no different and has all the hallmarks of Japan's suffocating hubris that was its undoing.

Moreover, history - all 5000 years of it - is enough to show that China has never succeeded in building on its successes within a new dynasty and its top down approach eventually chokes off innovation and social renewal.

This is a civilization that after 5000 years has only just produced it's first elected head of state and that person isn't even on the mainland. And is instead in the renegade province of Taiwan. A country that China's PLA leadership would reduce to scorched earth in a heartbeat if it thought it necessary to maintain power.

China is a paper tiger that has painted bucket loads of cement over its recently built sand castles and unless it reforms all levels of its government, industry, education and authoritarian culture it will fritter away it's best chance in centuries to become a fully functioning civilization again.

With the recent power struggles in China being settled in favour of the old guard - with President Hu and Prime Minister Wen - put back in their place as little more than figure heads - it would appear that China is working overtime to repeat the mistakes of the last 5000 years and let the greed of the few trash the needs of the many.

Managing Director SME Inc | Australia - August 09, 2011, 9:06AM

The Communist China had more severe criticism on America.
It called the US a paper tiger, a ruthless invader, an exploiter over the fate of those unfortunate peoples around the globe, a war monger, and please search Google for more.

Henry | sydney - August 09, 2011, 9:06AM

The dragon reveals its fangs! Only a single party state can take aim at America's defence budget while spending so much on her own. These injudicious comments reveal China's estimation of its growing strength.Expect more belicose statements as the financial crisis deepens. The US may be a winged eagle but it can still fly!

dalton | Perth - August 09, 2011, 9:12AM

Instead of gloating and lecturing, China should be preparing for their coming crises in a couple of decades:

- demographic turnaround that leaves single-child retirees without pensions in a country lacking a social-security system,
- running out of factory-fodder labour that allowed the unceasing expansion of cheap manufacturing,
- loss of competitiveness to even cheaper manufacturing countries unless China can become genuinely innovative rather than copying Japan in merely doing process innovation,
- the political pressure building up by young people not accepting the restrictive regime of the Communist Party

Unless they fix these problems, China's economic star will be shorter-lived than Japan's.

morrgo - August 09, 2011, 9:30AM

So to summarise, China has told the US how to spend its money.

And now Peter Hartcher has told China what to do with its money.

Good good.

Bertran de Born - August 09, 2011, 9:30AM

Why is it that America has the right to do or say what it wants in the world, but when another country dares to say anything or comment they are attacked.

Nothing China said there is wrong. America is wasting trillions on wars and its military that are totally unnecessary, heck it could probably even be argued that the war on terrorism has actually only increased the risk to America, and its allies, over time rather than decreased it.

And the idea of moving towards an international currency, how is there anything wrong with that, America has almost single handedly created the current economic climate through mismanagement, corruption and just plain immoral actions, so why shouldn't we move to a system which minimizes the impact one country can have on the worl.

MM | Brisbane - August 09, 2011, 9:37AM

Why would anyone want to defend the US's own irresponsibility in fiscal and economic management is beyond me. They are the single orchestrator of their own situation. As they say.. if you cant stand the heat .. get out of the kitchen... China is right to criticise..If It were my money, I too would be using words that Im sure even this editor couldnt print...

Doomed | Sydney - August 09, 2011, 9:45AM


The US attempt to intervene in the Civil war between the communists and the Nationalists after WW2 was an attempt to prevent bloodshed and to bring peace to a country which the US, under Roosevelt, had hoped to bring into the great powers of post-WW2 nations. They sent their best men to try and achive this: - Gen Stilwell (during the war) and General Marshall (after it). And they did not so much attempt to prevent the current communist regime from coming to power, but sought to bring a reconciliation between them and the Nationalists, and a joint sharing of power. (Any biography of Marshall will explain this). The fact that they failed was a reflection more of the enormity of the task and the intransigence of the warring partries, than a lack of goodwill and trying - and perhaps partly explains why from that time on they instead decided to choose sides.

wka | sydney - August 09, 2011, 9:50AM

The West should never have handed it's manufacturing sector to China. However, the short-sighted lure of being able to get its hands on products for next to nothing (and then passing them on to needy consumers for a huge profit) was bound to bring it to grief in the end. We'll go the same way with our climate - we're well on the way to wrecking that, too.

EBAB | St Lucia - August 09, 2011, 9:54AM

If your bank has been mismanaging your money, should you not speak up? Hasn't the USA been using its debts to world to destroy other nations in the world when internal politics of these nations have nothing to do with it? It has always been an oriental philosophy to earn, then save before spending. So what wrong with China's current huge savingsS&P should be praised? It still has loads of infrastructure development, especially in the internal areas, to modernise and create jobs for its huge population. To say that the yuan is undervalued is to fear saying the USD is overvalued. S&P should be praised for calling a spade a spade.

dypk | Sydney - August 09, 2011, 9:58AM

@ dalton | Perth ...

Why not check your facts before spouting? In dollar terms the Chinese are still spending far less than the US and other western nations.

The problem with Hartcher's article is that the criticism of 'high savings' in China underplays the concern about the exposure of Chinese banks to high levels of borrowing by provincial and city authorities. Up to the reader to decide if this is an imbalance or if the trillions in US bonds are a hedge against an internal debt crisis.

jaro | sydney - August 09, 2011, 9:59AM

@ lesm

Crikey Les, I'm surprised you didn't take this opportunity to recommend that the Americans default on their Chinese debts. Or is China going to be the only creditor you believe doesn't deserve to take a haircut for their reckless lending practices?

SteveH. - August 09, 2011, 10:01AM

if you're a big share holder of a company & the board of directors have no idea how to spend your money, start throwing it away & tell you it's non of your business, will you do or say something about it? afterall we're talking about trillions of dollars here, similar to 20 NBN networks.

FtD | Sydney - August 09, 2011, 10:03AM


Spot on.

And with the U.S we're witnessing nothing less than the end of the empire as we know it. America is weakened, the drop in self-confidence palpable and if a charismatic leader from outside the beltway can somehow inspire and most importantly organise the masses - it's a revolution waiting to happen.

Steve Franklin | North Sydney - August 09, 2011, 10:05AM

For once China deserves its space to say what it wants. After being addressed on all things from its exchange rate peg, to human rights, one can hardly fault China for its posturing given it too stands exposed by any US-Europe economic downturn and subject to a potential tinderbox of social unrest. However China is unfit to assume mantle of a superpower by itself. It should align with India and perhaps also with Brazil (but not Russia which is a larrikin stooge of the West). A BIC econo-military axis is what is needed to pull the world out of the mess created by Western over indulgence and extravagance. Australia would do well to encourage the study of Mandarin and Hindi in schools and universities.

Banta Singh | Harris Park - August 09, 2011, 10:05AM

I find it most instructive that both superpowers (USA & China) have massive national economic dysfunction (deficits & surpluses) that they use for mutual finger-pointing while both have millions of people in economic distress at home respectively.

The Communist / Democrat / Republican / Tea Parties are very strange bed-fellows.

A pox on BOTH your houses, I say.

Andy S | Sydney - August 09, 2011, 10:17AM

"...introduce the notions of honesty, integrity, accountability and transparency..." - Observer | Narrabundah - August 09, 2011, 9:04AM

name me one government that has all those virtues

when you have $1.2 trillion invested in something, I'd say it's well within your rights to criticise the management of that something when they mess up

why is it unreasonable for China to call for a new currency that's not tied to one single country? as it is now, the entire global financial market is at the mercy of the whims of US politicians.
billions of dollars lost around the world because of internal political squabble of one country


"Moreover, history - all 5000 years of it - is enough to show that China has never succeeded in building on its successes..."
- Managing Director SME Inc | Australia - August 09, 2011, 9:06AM

Huh?? I'd say that's a testament to it's resilience
How many other "civilizations' lasted that long?

Tee | Sydney - August 09, 2011, 10:23AM

Bob Hawke wanted employers to give their employees a day off because of the ability to see Australia beat the U.S.A.at the America's Cup.I actually find what you think is a some sort stunning insight into the Chinese mind set, as bloody ridiculous.So what ,if other people gloat besides those,that the propaganda machine here in Australia confesses to going along with!? The statement itself was made by probably one human being,perhaps after some agreement in word use. It therefore maybe a general feeling,but not necessarily a definitive assessment of actually telling off the U.S.A. But perhaps doing a bit of Transactional Analysis and becoming teacher parent because the U.S.A. gloat is bloat.That even the remnant of history the Tea Party finds obnoxious as being American with this stuff going on in the U.S.A. And you are being clownish.Because even if there are some problems with Australian nationals up for trial etc. China is still open to U.S.A. investment as well as Australian.Which doesn't automatically help me in anyway ,but maybe more you.

p.a.travers | Tyringham.2453 - August 09, 2011, 10:25AM

Mr Hartcher and Mr White, going on the economic track record of the US and China over the past ten years, I dare say the latter has earned the right to criticise the former given the present circumstances, whether or not you see it as "gloating". The global economy hinges so heavily on the US economy, and look where that has got us.

Rob | Sydney - August 09, 2011, 10:27AM

Westerners are generally incredibly thin-skinned and sensitive. They cannot stand or accept their own doses of medicine when others verbally assault them and retaliate. The root cause of their thin-skin is the innate sense of superiority and by extension, racism.

Greg | Melbourne - August 09, 2011, 10:27AM

"China should be preparing for their coming crises in a couple of decades..." - morrgo - August 09, 2011, 9:30AM

While you're at it, why don't you predict the future for Australia in the coming decades? With the liberals believing that we should just enjoy the mining boom ride instead of securing more funds to invest in a more diverse economy, we should be just peachy when the biggest importer collapses as you predicts, shouldn't we?

Tee | Sydney - August 09, 2011, 10:33AM

@Banta Singh | Harris Park - August 09, 2011, 10:05AM

Haven't you heard of BRICS?

mama | sydney - August 09, 2011, 10:33AM

Down With The Running-Dog Debtors! Death to the Imperialist Cult of Junk Bonds! Fiscal Responsibility Advances Everywhere!

CEO Mao | Beijing - August 09, 2011, 10:35AM

One must be very concerned at the Chinese situation. They are buying up assets and property all over the developing world. This is not to be philanthropic. When they feel they have the upper hand, look out!

Max, | Rocky - August 09, 2011, 10:39AM

I've said it before and I'll say it again, I think history has shown that it is a mistake (or at least very "courageous") to try and predict the demise of the US - they have gotten themselves out of a lot of tight spots in the past (be they economic, security or civil unrest - or a combination of all three). But there is a first time for everything, I suppose.

never easy | Sydney - August 09, 2011, 10:39AM

US of A can dictate every country in the world what to do, incl Oz who is following the footsteps diligently to send troops to Afghanistan (albeit to please the mighty US). Subsidizing corn & soy so that it can be cheaply fed to cows, pigs, etc, so US citizens can get $1 hamburgers (watch Food Inc.) get unhealthy and strain the health system. Spend billions in defense to invade other countries and telling them how a country should be managed. Having its own currency (USD) as a global currency does put it in a more accountable place. Every person or country has a right to their opinion in how US should manage its economy when bloody nearly all of us in the world are affected by USA'z downfall. Best Solution --> remove the USD as a global currency. 100% debt 2 GDP ratio i.e. absurd!!!

Nick | Brissy - August 09, 2011, 10:46AM

Morrgo- 9.30am.
Spot on. The Chinese are going to find themselves going through the same social upheavals that occurred in the West during the 60s very soon, only on a much, much greater scale. When the Chinese people start to demand a social welfare system we will see just how solid the Chinese economy really is. Interesting times ahead, ya wouldn't be dead for quids.

k - August 09, 2011, 10:46AM

Read more: http://www.brisbanetimes.com.au/opinion/politics/china-cant-afford-to-be-too-gloating-20110808-1ij3x.html#ixzz1UUNnTMeB