China Will Keep Buying U.S. Government Debt

Its trade surplus depends on it. By MICHAEL PETTIS | From today's Wall Street Journal Asia Worries about China's finances are once again resurfacing in America. Commentators from Newsweek's Fareed Zakaria to British economic historian Niall Ferguson argue that Washington needs China to buy U.S. Treasury bonds to fund U.S. fiscal spending. And with Beijing embarking on a public spending plan of its own, the argument goes, China can't afford to play the role of America's lender of last resort anymore. This fearmongering grossly misrepresents the U.S.-China economic relationship. For starters, China's two trillion dollars in reserves is already invested, so it cannot be used to fund future U.S. deficits. China can only invest future reserve accumulation in U.S. debt, and the only way it can accumulate new reserves is by running... [read full story]