DiligenceChina

Earlier this week two Party officials speculated aloud about the possibility of using China’s large dollar holdings as a weapon against the US economy in the event that Congress passed what the Chinese consider to be punitive or threatening trade legislation:

“China threatens to trigger US dollar crash”

The officials speculated that a sell-off of Treasuries and dollar-denominated assets would devastate the US economy.

Just yesterday, however, the People’s Daily devoted a lot of home-page space to denying that this was official Chinese policy. ( http://english.peopledaily.com.cn/90001/90778/90857/6238259.html )
China has ‘no plans’ to sell off greenback

Reassuring? Well… no.

1) China has never had a good relationship with Congress. Beijing doesn’t seem to acknowledge their authority or importance. While at times this has been hilarious, it is getting to be a little scary and inappropriate. Beijing likes dealing with personalities, not institutions. In China, the politburo is low-key, and the Premier makes speeches. They’ve never been able to get a handle on the notion of hundreds of officials with shifting agendas giving daily press conferences.

2) Beijing’s practice of sending mid-level academics or technical spokesmen out to make a “misstatement” in a foreign business center is becoming standard operating procedure for floating trial balloons and issuing veiled threats.

3)Saying “We never really planned to do the devastating thing that irresponsible Party official/general /government spokesman said we would do” is Chinese Tough Talk. The soothing response in the People’s Daily is a tacit acknowledgement that the issue is real and on radar screens in Beijing.

China doesn’t see any linkage between dangerous product exports and its own internal financial policies. Western politicians are trying to portray China in terms of a broader, multi-faceted threat. The mismatch has the potential to lead to an escalation in tension.