China threatens 'nuclear option' of dollar sales
By Ambrose Evans-Pritchard
Last Updated: 1:41am BST 09/08/2007
The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.
Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.
Shifts in Chinese policy are often announced through key think tanks and academies.
Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.
It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.
Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.
"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.
He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.
"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.
"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.
The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo".
She said foreign control over 44pc of the US national debt had left America acutely vulnerable.
Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.
"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said.
A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.
The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June.
Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".
Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy, but appeared to win few concession from Beijing on a unscheduled trip to China last week aimed at calming the waters.
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La '''République populaire de Chine''' a répliqué aux menaces du Gouvernement des '''États-Unis d'Amérique''' de leur imposer des sanctions économiques pour forcer l'appréciation du yuan par des menaces similaires contre le dollar américain.
Selon des rapports, deux hauts officiels du Parti communiste ont indiqué que Pékin pourrait utiliser ses immenses réserves internationales de fonds comme une arme pour contrecarrer la pression du Congrès des États-Unis.
La Chine possède les plus grandes réserves internationales de fonds du monde, avec un montant de 1,33 billion (ou 1,33 mille milliards) de dollars américains. En raison de la taille même de ces réserves, leur conversion en une autre devise produirait un effondrement du dollar américain à un moment dans lequel la devise américaine a reculé vis-à-vis de la majorité des monnaies du monde.
Ce mouvement de fonds pourrait pousser l'économie nord-américaine dans une récession profonde, qui ne serait pas avantageuse pour la Chine, les États-Unis étant l'un des plus grands importateurs de marchandises chinoises. Mais cela démontre sans nul doute que la Chine est disposée à utiliser ce pouvoir économique comme une carte de négociation dans ses échanges avec les États-Unis.
En pleine campagne électorale, Hillary Clinton a proposé la mise en place de moyens législatifs restrictifs pour prévenir que les décisions économiques de Pékin, ou de Tokyo, soient utilisées comme moyen de chantage envers les États-Unis. Il existe en ce moment une proposition de loi appuyée par la Commission des Finances du Sénat afin d'imposer des taxes sur les importations en provenance de Chine comme rétorsion 
pour ce que les Sénateurs considèrent comme une manipulation de devises.