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Li Says China Paying Great Attention to U.S. Debt Ceiling

China's Premier Li Keqiang
Li Keqiang, China's premier. Photographer: Tomohiro Ohsumi/Bloomberg

Premier Li Keqiang said China is paying “great attention” to the U.S. debt-ceiling issue, adding his voice to official concern that wrangling over a borrowing limit risks a default in the world’s biggest economy.

Li didn’t elaborate on the concern in a report by the official Xinhua News Agency posted today to the government’s website in Chinese, while a separate English report said Li was “expressing Beijing’s concern about Washington’s debt-ceiling problem.” He made the comment in a meeting yesterday with U.S. Secretary of State John Kerry at the Association of Southeast Asian Nations summit in Brunei, Xinhua said.

The remarks boost pressure from China, the biggest foreign holder of U.S. Treasuries at $1.28 trillion in July, for U.S. lawmakers to overcome a political impasse and raise the country’s borrowing authority. Chinese Deputy Finance Minister Zhu Guangyao said earlier this week that the U.S. should prevent a default and ensure the security of China’s investment in Treasuries, according to Xinhua.

“We hope the U.S. can take actions to ensure the safety of China’s assets and investments in the U.S.,” Hua Chunying, a spokeswoman for China’s Foreign Ministry, said at a regular briefing yesterday. Economic problems in the U.S. will “naturally impact” China and the world economy, Hua said.

Japan, the second-biggest Treasuries holder, must consider the impact of any default on its bond holdings, even as the U.S. will probably avoid a fiscal crisis, Japanese Finance Minister Taro Aso said Oct. 8.

Any failure by the U.S. to honor its debt obligations would damage the dollar’s status as the world’s reserve currency. A shift in asset allocation by China, Japan or other major holders of Treasuries could push up U.S. interest rates and cause swings in global currency markets.

Download: Matt Klein on Overblown Fears about China and US Debt

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