The Cable

Clinton to Asia on debt ceiling crisis: Don’t panic

As the nation careens toward a possible debt default, Secretary of State Hillary Clinton urged Asian business leaders not to overreact to the U.S. political crisis, taking some implicit shots at China's economic policies as well.

"The political wrangling in Washington is intense right now. But these kinds of debates have been a constant in our political life throughout the history of our republic. And sometimes, they are messy," Clinton said in Hong Kong on Monday. "But this is how an open and democratic society ultimately comes together to reach the right solutions."

"Through more than a century of growth, the American economy has repeatedly shown its strength, its resilience, and its unrivaled capacity to adapt and reinvent itself," she said. "And it will keep doing so."

Clinton, who was speaking at an event organized by the Macau chambers of commerce and the Asia Society, said that economics is becoming a higher priority in U.S. foreign policy. She pledged to give a major speech on "America's strategic and economic choices" this fall, and argued that the United States' and East Asia's economies are inextricably linked.

"We are a resident power in Asia -- not only a diplomatic or military power, but a resident economic power. And we are here to stay," she said.

In remarks that appeared at times to be directed at China, Clinton then went on to call for fairness and transparency in economic systems.

"Openness, freedom and transparency contribute to the fourth principle we must ensure: fairness. Fairness sustains faith in the system," she said. "That faith is difficult to sustain when companies are forced to trade away their intellectual property just to enter or expand in a foreign market, or when vital supply chains are blocked. These kinds of actions undermine fair competition, which turns many off from competing at all."

The Chinese government, the largest holder of U.S. debt, has been largely silent about the U.S. debt ceiling crisis. But experts warn that the failure of the U.S. government to resolve the issue expeditiously could further undermine confidence in the already weak U.S. dollar and harm the overall image of the U.S. as a competent world leader.

"We've got repeated statements from Chinese officials of sort of, you know, we hate you guys, but we don't have any choice. And we're still buying your debt, because we don't see anywhere else to buy it," said Sebastian Mallaby, senior fellow for international economics at the Council on Foreign Relations. "But, when the reserve currency is unloved by the accumulators of those reserves -- namely, the central banks of countries like China -- you're on thin ice. They're buying the dollar assets, but they don't like it. And so they're looking actively over a sort of long-term horizon to try to find an alternative."

The Heritage Foundation's Derek Scissors wrote today that China has already slowed its purchase of U.S. Treasury bonds, but for the time being, China has few other options but to continue buying U.S. dollars.

"There's the idea that China can just stop buying foreign currency assets. False. The PRC's own balance of payments rules mean they have to keep buying, and they know they have to."

AFP/Getty Images

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