SOH News

South China Sea Incident/China’s Purchase of U.S. Treasuries

External Podcast: Visit Digging-to-China.com to listen

Segment 1:  South China Sea Incident

On Sunday, March 7, the Navy surveillance ship Impeccable was harassed by a group of Chinese naval vessels.  Both sides questioned the other’s motives, with Beijing accusing the U.S. of conducting “activities in China’s special economic zone in the South China Sea without China’s permission”.  In other words, the U.S. was engaged in surveillance activities in and around Chinese waters.  The U.S., on the other hand, said it was operating in international waters, thus casting China’s behavior as aggressive in nature.  You may recall in April 2001, a U.S. Navy surveillance plane operating in international airspace over the South China Sea had a midair collision with a Chinese fighter jet that was stalking it.  The incident resulted in the death of the Chinese pilot and led to the detention of 24 U.S. service personnel for 11 days when the plane made an emergency landing in China.  It was speculated at the time that the Chinese were testing the resolve of the new Bush administration.  If so, this new incident, not long after the inauguration of U.S. President Barack Obama, could have set a pattern for Beijing’s “warm welcome” of new U.S. presidents.

Guest:  Admiral James “Ace” Lyons, former Commander in Chief of the U.S. Pacific Fleet.

Segment 2:  China’s Purchase of U.S. Treasuries

In September last year, China surpassed Japan to become the largest overseas holder of U.S. Treasuries.  China’s holdings of the securities increased $67 billion in October to $653 billion, according to Treasury Department data.  China’s foreign reserve, the world’s largest at about $1.9 trillion, recently fell for the first time in five years.  With less dollars flowing into the country, China’s need to buy U.S. debt is reduced.  Other factors that may slow growth in the reserves this year include a possible narrowing of the trade surplus and less foreign direct investment.  If China is losing its appetite for debt from the U.S., this could have painful effects for American borrowers.

Guest:  Robert Sherretta, President of International Investor Corporation