China warning the United States about its mounting debt is like your coke dealer staging an intervention.
Saturday’s editorial by the state-run Xinhua News Agency begged the U.S. to confront its “addiction to debts” and “come to terms with the painful fact that the good old days…are finally gone,” according to the Associated Press.
But, as Clyde Prestowitz notes on his Foreign Policy blog, China has enabled that mounting debt, and has a material stake in seeing that it continue to increase:
“Even as they were scolding, the Chinese authorities were in the market buying billions of dollars worth of U.S. Treasury debt. And why are they doing this? Well, there are complex reasons, but a main one is to keep their own currency undervalued as a kind of export subsidy. By buying U.S. Treasuries, China’s leaders are pushing up the value of the dollar versus the yuan and thereby making U.S. exports more costly and U.S. imports of Chinese goods and services less expensive. In effect, they are devaluing their own currency.
“This behaviour by China has tended to depress U.S. interest rates, subsidise U.S. consumption, and remove any disadvantage to the United States of its over-consumption. In short, China has done everything it can to encourage and induce just the behaviour it is now urging Washington to halt.”
Moreover, Prestowitz argues, by forcing its citizens to hand over all their U.S. dollars in exchange for yuan, thus suppressing consumption, the Chinese government has actually weakened the value of its own dollar holdings. Strengthening that value would require allowing Chinese citizens to hold onto some of the American dollars they earn through trade, not confiscating them.