CHINA DEBT THREAT
The assessment will include an examination of the impact of what has been called Beijing’s financial “nuclear option” — the calling in of its debt holdings as a way to punish the United States.
That option was discussed last year by Chinese military officials angered by continued U.S. arms sales to Taiwan. The threat was dismissed by a State Department spokesman as hollow because China would be harming its interests by the action.
A spokesman for the office of the director of national intelligence declined to comment.
Word of the assessment comes amid reports that U.S. debt holdings by China are exploding.
In June 2010, China’s estimated holdings of security assets were valued at $1.611 trillion. The holdings for June 2009 were $1.464 trillion.
Chinese Maj. Gen. Luo Yuan told state-run media a year ago, in response to U.S. arms sales to Taiwan, that China could attack “by oblique means and stealthy feints,” including “using economic means, such as dumping some U.S. government bonds.”
Liu Jiahua, deputy director of the Chinese State Administration of Foreign Exchange, told a U.S. official that “the recent U.S. announcement of another arms sale to Taiwan made it more difficult for the Chinese Government to explain its policies supportive of the U.S. to the Chinese public.”
“How do you deal toughly with your banker?” she asked.
The Pentagon, too, is studying the possibility of economic warfare by China. It held a war game in 2009 involving financial weapons such as stocks, bonds, currencies and gold reserves, and reports of the exercise indicated that China won.
Paul Bracken, a Yale University professor who took part in the war game, said it was held because the Pentagon had a sense that “something important was going on that was being looked at in a narrow way by economists.”View Entire Story
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Bill Gertz is a national security columnist for The Washington Times and senior editor at The Washington Free Beacon (www.freebeacon.com). He has been with The Times since 1985.
He is the author of six books, four of them national best-sellers. His latest book, “The Failure Factory,” on government bureaucracy and national security, was published in September 2008.
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