China urges US to protect investors

BEIJING – China on Thursday urged Washington to protect the interests of investors, after ratings agency Moody’s placed the United States’s triple-A debt rating on a downgrade watch.

China is by far the top holder of US debt, with holdings at $1.153 trillion in April according to US data.

“We hope the US government adopts responsible policy and measures to ensure the interests of investors,” said foreign ministry spokesman Hong Lei.

Moody’s Investor Service said Wednesday it had placed the United States’ triple-A rating on a downgrade watch because of rising prospects the US debt limit will not be raised in time to avoid default.

The announcement came as US lawmakers try to hammer out a deal that would allow President Barack Obama to raise the country’s debt ceiling to allow it to meet its repayment obligations.

Republicans are refusing to lift the country’s $14.29 trillion debt ceiling without deep government spending cuts, while they reject Democrats’ demand that tax increases must be part of any sweeping deficit reduction plan.

A downgrade could sharply raise US borrowing costs, worsening the country’s already dire fiscal position, and send shock waves through the financial world, which has long considered US debt a benchmark among safe-haven investments.

China has in the past raised worries that the massive US stimulus effort launched to revive the economy after the global downturn would lead to mushrooming debt that erodes the value of the dollar and its Treasury holdings.

Beijing had been cutting its holdings of US Treasurys for five months in a row until March. The figure only increased slightly in April from $1.145 trillion in the previous month, US data showed.

The foreign ministry’s comments came after Chinese credit ratings agency Dagong said Thursday it had also put US sovereign debt on negative watch for a possible downgrade.

Dagong said the ability of the United States to repay debt was likely to decline given its economic growth was expected to slow and fiscal deficits to remain high in the next couple of years.