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Economy Jan 3, 2013

China on ‘fiscal cliff’ deal: US kicking can towards ‘fiscal abyss’

Beijing: The last-minute US deal over tax increases has fixed one problem, but the world's largest economy must get to grips with a budget deficit that threatens not a "fiscal cliff" but a "fiscal abyss", China's Xinhua news agency said on Wednesday.

The state news agency said in a commentary, issued in English on its website, that while the United States was clearly the dominant economic power, it "simply cannot live on borrowed prosperity forever", and its politicians seemed reluctant to tackle its total debt of about $16 trillion.

Reuters

"In a democracy like the United States, tax increases and spending cuts, the exact dose of medicine needed to cure its chronic debt disease, have long proved hugely unpopular among voters," Xinhua said.

"So the politicians have chosen to kick the can down the road again and again. But as we all know, the can will never disappear. Sometime and somewhere, you might trip over it and fall hard on the ground, or in the US case, into an abyss you can never come out of."

China has a strong interest in a healthy US economy. It sits on the world's biggest pile of foreign exchange reserves, worth $3.3 trillion, and as much as 70 percent of the holdings are invested in US dollar assets, including US Treasuries, according to analysts.

The United States is also a major export market for China.

Global stock markets rose on Wednesday on relief that the US had passed measures to avert the huge tax increases and spending cuts that would have pushed the economy into recession.

However, Xinhua also took aim at US politicians, saying that if they came so close to falling off a cliff, "they are far less likely to reach a deal to help their country climb out of an abyss".

In separate commentaries Xinhua published on Tuesday on the fiscal cliff debate, it called on the United States to live up to its global economic responsibilities and also blamed its poorly functioning political system for the mess.

Such commentaries are not policy statements as such, but can be read as a reflection of Chinese government thinking.

Reuters

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