China Threatens Economic War

by Kevin D. Freeman on August 19, 2011

We have been warning that the Chinese are preparing for Economic War for quite some time. In fact, we believe they have been waging it in minor ways for more than a decade. We have pointed to the publication of the People’s Liberation Army (PLA) of Unrestricted Warfare in 1999. We have noted official Chinese activity consistent with Economic Warfare that demonstrates an endorsement of the Unrestricted Warfare doctrine. We have pointed to comments from senior Chinese officials endorsing the concept. In fact, this Blog is filled with these and other examples all pointing the same direction. Yet, despite these clear warnings, American Political leadership and the National Security/Intel bureaucracy seems oblivious at best to the threat with only a few exceptions. We can explain some of the reasons for this including unchecked arrogance, the fact that there is a great deal of Chinese money used to influence Washington, the fact that there are serious misunderstandings regarding a monolithic China (and other issues), basic corruption whereby politics trump patriotism, and outright incompetence. Most of the problem is excessive arrogance. Hopefully our education efforts will make some progress.

Now, we see bolder declarations emerging in Chinese papers according to Gordon Chang in World Affairs Journal:


On Monday, People’s Daily, China’s leading newspaper, stated it was time for Beijing to consider using its “financial weapon” against the United States. 

The Communist Party’s flagship publication suggested that the Chinese government “directly link” its purchases of US Treasury debt to Taiwan arms sales and “require” ratings agencies to downgrade the United States in order to force up interest paid to China. China should also “launch limited trade sanctions” against states whose representatives in Congress support Taiwan. “China-US relations will always be constrained by these people and will continue along a roller coaster pattern if China does not beat them until they feel the pain,” the paper said.   

The context for the stinging piece in the party’s self-described mouthpiece may be proposed arms sales to Taiwan, but the general message is clear: China should use its holdings of American obligations to accomplish its many geopolitical aims. “In fact, China has never wanted to use its holdings of US debt as a weapon,” the paper noted. “It is the United States that is forcing it to do so.”

The People’s Daily piece is just the latest of Beijing’s blistering attacks in the last ten days on the debt issue. The official Xinhua News Agency, for instance, issued two recent attacks on the United States. The more important of the two, on Saturday, called for international supervision over Washington’s printing of dollars and suggested consideration of a new international reserve currency to replace the greenback “to avert a catastrophe caused by any single country.”  

Skeptics will properly point out that the Chinese are somewhat trapped into buying and holding U.S. Treasury bonds. There simply is no other market deep enough or large enough to accommodate Chinese reserve holdings.While that is true for now, the argument is weakening almost daily. We’ve already seen a downgrade of U.S. debt and a serious weakening of the dollar’s reserve currency status. Now, almost unseen is an assault on the U.S. Treasury status as the only market large and deep enough to handle the world’s needs. This is the final thread holding things together. We’ll explain that in more detail in a future post. The hint we can provide is George Soros’ solution to the European debt mess.


All posts Copyright (c) 2011 Kevin Freeman, All Rights Reserved

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