BEIJING, July 29, 2011 (AFP) – Chinese media attacked the United States over its debt wrangling Friday, warning that lawmakers could depress the value of the dollar, fuel global inflation and plunge the world into another recession.
The United States must raise the $14.3 trillion debt ceiling by August 2 or risk defaulting on its repayment obligations, a move that would send seismic shocks through the global economy.
Raising the debt ceiling could hurt the US dollar and trigger a “torrential flood” of liquidity into the global economy, fuelling inflation in emerging economies such as China, the Communist Party mouthpiece People’s Daily said Friday.
The report in the paper’s overseas edition followed a stinging commentary by China’s official Xinhua news agency accusing US lawmakers of being “dangerously irresponsible”.
Taking an opposite line to the People’s Daily stand against raising the debt ceiling, Xinhua warned that a debt default ran the risk of “strangling the still fragile economic recovery”.
“It is unfortunate and disappointing that when political leaders in Washington spar over who is doing good for their country, they take little account of the world’s economic soundness,” Xinhua said Thursday.
The report underscores growing anxiety in China over the health of the US economy, which is struggling to recover from the global crisis and is now locked in a bitter battle to raise the debt ceiling and avoid default.
China is by far the top holder of US debt with holdings at $1.16 trillion in May, according to the latest US data, and has raised concerns about its investment in the past.
The Chinese government has so far made no official comment on the latest crisis, but Xinhua is controlled by the state and its commentary is sure to have been officially sanctioned.
A US default could send the world into a recession “much nastier” than the 2008 crisis, Xinhua said on Thursday, urging lawmakers to finish “their political jockeying” and “restore international investor confidence”.
“The potential collateral damage is way too heavy,” Xinhua said, adding it was time for Washington to “revisit the time-tested common sense that one should live within one’s means”.
In a separate report, Xinhua said lawmakers on both sides of the debate were “wasting precious time on finger-pointing, public showdowns and tough backdoor bargains” to get the best deal for their parties.
US Republicans were forced to abandon a vote late Thursday on a plan to raise the debt ceiling enough to avert default for at least six months because party leaders were unable to garner enough support from their own members.
Democrats have rallied behind a rival plan that would cut spending by $2.2 trillion over 10 years, and raise the debt ceiling until after the November 2012 presidential elections.
China’s foreign exchange regulator last week called on the US to protect investor interests as lawmakers remained at odds over how to slash the country’s deficit.
Beijing has previously warned that the massive US stimulus effort launched to revive the economy after the global downturn would lead to mushrooming debt that erodes the value of the dollar and its Treasury holdings.