Sunday, August 7, 2011

US downgrade 'sounds alarm bell': China media

Standard & Poor's US debt downgrade was a wake-up call for the world, a commentary in a top Chinese state newspaper said, adding that Asian exporters faced special risks.

Citing economist Sun Lijian, the People's Daily on Sunday said Standard & Poor's Friday cut to the US' credit rating from the top notch triple-A to AA+ had "sounded the alarm bell for the dollar-denominated global monetary system".

The comments carried in the Communist Party mouthpiece follow a stinging attack launched by the official Xinhua news agency on Saturday, which said Beijing had "every right" to demand Washington safeguard Chinese dollar assets.

China -- which sat on the world's biggest foreign exchange reserves of around $3.20 trillion as of the end of June -- is the largest foreign holder of US Treasuries.

Sun, vice head of the School of Economics at Shanghai's Fudan University -- one of China's top universities -- warned that the biggest victim of the downgrade would not necessarily be the United States but countries that depended on external demand to build national wealth.

"No matter whether these are Asian countries that rely on exports of merchandise, or Latin American, Middle Eastern countries and nations such as Russia that depend on exports of natural resources," he was quoted as saying.

"All of these may face risks that the US debt they hold will fall in value, leading to a deterioration in liquidity." (more)