China must punish US for Taiwan arm sales with 'financial weapon' Updated: 2011-08-08 11:38 By Ding Gang (peopledaily.com.cn)

Now is the time for China to use its "financial weapon" to teach the United States a lesson if it moves forward with a plan to sale arms to Taiwan. In fact, China has never wanted to use its holdings of US debt as a weapon. It is the United States that is forcing it to do so.

The US House of Representatives just passed a debt ceiling bill on Aug. 1. On the next day, a total of 181 members of the House of Representatives signed a letter sent to US President Barack Obama stating that the federal government should approve the sale of F-16 C/D fighter jets to Taiwan as soon as possible to help ensure peace and stability across the Taiwan Strait.

The US Senate passed the debt ceiling bill on Aug. 2, and Obama signed it into law. Shortly thereafter, the US Treasury obtained the authorization to issue 400 billion US dollars in new debt. Will China become the largest buyer of US debt again?

Despite knowing that major creditor countries, especially China, would be the main buyers of its new debt, certain arrogant and disrespectful US Congress members have totally ignored China's core interests by pressuring the president to sell advanced jets and even an arms upgrade package to Taiwan.

US treasuries will lose value if China stops or reduces its purchases of them on a large scale, which will also affect the value of China's US treasury holdings. However, as the situation has gotten out of hand, allowing Washington politicians to continue their game might lead to more losses.

US arms sales to Taiwan can only create more jobs for the United States but cannot improve the ability of Taiwan's military force to compete with the Chinese mainland. The essence of the problem is that some US Congress members hold a contemptuous attitude toward the core interests of China, which shows that they will never respect China. China-US relations will always be constrained by these people and will continue along a roller coaster pattern if China does not beat them until they feel the pain.

Stopping or massively reducing US Treasury bond purchases will certainly bring losses to China to a certain degree. China must try to reduce the loss and transfer the passive situation to an active one. China should consider how to build a direct link between the US Treasury bond purchase and US domestic politics while adopting measures to gradually adjust the structure of China's foreign exchange reserves.

For example, China can directly link the amount of US treasury holdings with US arms sales to Taiwan and require international credit rating agencies to demote US treasuries to force the United States to raise interest rates. China can also launch limited trade sanctions to the states of those US Congress members who vigorously advocated arms sales to Taiwan to affect their employment.

Because it is the money of the people earned through hard work, China is not willing to arbitrarily use US Treasury holdings as a weapon. However, China has no choice but to use it as a weapon to defend itself when facing threats to China's sovereignty.