Tags: china | central | bank. debt

China’s Central Bank Says U.S. Faces ‘Debt Sustainability’ Risks

Friday, 12 Aug 2011 03:41 PM

China’s central bank said that the U.S. faces “debt sustainability” risks in the medium- and long-term, the latest expression of concern from the nation that is America’s biggest creditor.

“Developed countries’ debt problems are worrisome” and may restrain a longer-term global recovery, the People’s Bank of China said in a quarterly monetary policy report on its website today. In addition, the euro zone’s debt woes may spread to “key nations,” it said.

At the same time, the risk of a U.S. default has been “basically eliminated in the short term” after the raising of the government’s debt ceiling, it said.

The central bank expressed confidence that the expansion of the Chinese economy will be sustained, citing factors including urbanization, the construction of low-cost housing and the potential for big gains in consumption. Fighting inflation will remain the top priority in the second half of this year and monetary policy will remain “prudent,” the report said.

China owns $1.16 trillion of U.S. Treasuries, more than any other nation.

Elevated unemployment in the U.S and other developed countries will curb global demand, the central bank said. It said that China is likely to see net foreign-exchange inflows in the second half.

Capital Inflows

“Extremely loose international monetary conditions are hard to reverse in the short term and a large amount of capital is still likely to flow into relatively fast-growing emerging countries,” it said in the statement.

The People’s Bank of China repeated a pledge to improve the yuan exchange-rate mechanism and to keep the currency “basically stable” at a reasonable and balanced level. The Chinese currency rose to a 17-year high this week as policy makers sought to counter accelerating inflation.

“The foundation of stabilizing prices is still not solid enough, and the situation is not optimistic,” it said.

Consumer prices rose 6.5 percent last month and inflation has exceeded the government’s full-year target of 4 percent each month this year. Gross domestic product expanded 9.5 percent in the second quarter, slowing from a 9.7 percent gain in the first three months.

The central bank said it will employ “multiple policy tools” such as interest rates, exchange rates and bank reserve requirements to manage liquidity.

The economy is headed in the direction expected as a result of macro-control measures, it said.

“Keeping the economy growing at a steady and appropriate pace and returning it to a sustainable level is both conducive to rein in the relatively rapid price increases and to adjust the economic structure and growth mode in the long term,” the statement said.

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China s central bank said that the U.S. faces debt sustainability risks in the medium- and long-term, the latest expression of concern from the nation that is America s biggest creditor. Developed countries debt problems are worrisome and may restrain a longer-term...
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