China seeks to turn US debt holdings into leverage

A lot of people worry that some day China will use its enormous holdings of US debt to put pressure on our foreign policy. Well worry no longer, that day has arrived:

Leaked diplomatic cables vividly show China’s willingness to translate its massive holdings of US debt into political influence on issues ranging from Taiwan’s sovereignty to Washington’s financial policy.

China’s clout — gleaned from its nearly $900 billion stack of US debt — has been widely commented on in the United States, but sensitive cables show just how much influence Beijing has and how keen Washington is to address its rival’s concerns.

An October 2008 cable, released by WikiLeaks, showed a senior Chinese official linking questions about much-needed Chinese investment to sensitive military sales to Taiwan.

However, I’m not sure that China’s holdings give them the kind of leverage they hope (and that we seem to fear). With so much of China’s sovereign wealth tied up in US treasuries, I don’t think they can afford to endanger those holdings.  As the old saying goes: if you borrow a million dollars, the bank owns you; if you borrow a billion, you own the bank.

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