Macroeconomic indicators - Chinese economists see big risk on US downgrade
Reuters reported that Chinese economists said the US credit rating downgrade by Standard & Poor poses great risk to financial markets and expect it to prompt China, the world biggest holder of US Treasuries to accelerate the diversification of its holdings.
The United States lost its AAA long-term credit rating from S&P on Friday.
S&P cut the rating to AA-plus on concerns over the government's budget deficits and rising debt burden. The move is likely to raise borrowing costs eventually for the US government, companies and consumers.
Mr Li Jie a director at the Reserves Research Institute at the Central University of Finance and Economics said "There would be chaos in international financial markets at least in the short term. The most direct impact for China would be the hit on its reserves. The value of China's dollar investments will fall and the shrinking effect may be great."
He said that "China will be forced to consider other investments for its reserves US Treasuries aren't as safe anymore. There is a class of assets out there that are more risky than AAA, but less risky than AA+. China didn't consider these investments before, but now it would be forced to do so."
Mr Ding Yifan a deputy director at the Development Research Center a think tank under the State Council said S&P's downgrade may also push the United States to ease monetary policy further, causing even more uncertainty in global markets.
He said that "I think the chance of the United States launching another round of quantitative easing is rising, as outside investors may try to avoid dollar assets, leaving the Fed with no choice but to buy their own Treasuries.
He added that "If the United States really introduces QE3, it will definitely add more uncertainties to the global economy and could push up the prices of global commodities."
The United States lost its AAA long-term credit rating from S&P on Friday.
S&P cut the rating to AA-plus on concerns over the government's budget deficits and rising debt burden. The move is likely to raise borrowing costs eventually for the US government, companies and consumers.
Mr Li Jie a director at the Reserves Research Institute at the Central University of Finance and Economics said "There would be chaos in international financial markets at least in the short term. The most direct impact for China would be the hit on its reserves. The value of China's dollar investments will fall and the shrinking effect may be great."
He said that "China will be forced to consider other investments for its reserves US Treasuries aren't as safe anymore. There is a class of assets out there that are more risky than AAA, but less risky than AA+. China didn't consider these investments before, but now it would be forced to do so."
Mr Ding Yifan a deputy director at the Development Research Center a think tank under the State Council said S&P's downgrade may also push the United States to ease monetary policy further, causing even more uncertainty in global markets.
He said that "I think the chance of the United States launching another round of quantitative easing is rising, as outside investors may try to avoid dollar assets, leaving the Fed with no choice but to buy their own Treasuries.
He added that "If the United States really introduces QE3, it will definitely add more uncertainties to the global economy and could push up the prices of global commodities."
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