MercoPress. South Atlantic News Agency

China urges US to adopt “responsible measures” to guarantee investors interests

China’s dilemma money, money, money, but where to spend it?

China, the top holder of U.S. Treasury bonds, urged the United States Tuesday to adopt “responsible measures” after ratings agency Standard & Poor's cut the outlook on U.S. sovereign debt to negative.

S&P sent stocks plunging worldwide when it slashed its outlook from “stable” to “negative” Monday, pointing to doubts about Washington's ability to tackle looming debt and fiscal deficits - concerns raised by Beijing in the past.

“U.S. Treasury bonds are a reflection of U.S. government credit and are important investment products for domestic and international institutional investors,” Foreign Ministry spokesman Hong Lei said in a statement.

“We hope the U.S. government will earnestly adopt responsible policy measures to guarantee the interests of investors,” he added.

S&P on Monday gave the United States until 2013 to come up with a credible plan for addressing its financial problems, or risk losing its coveted “AAA” credit rating, which helps it to borrow at ultra-low rates.

The U.S. government immediately rebuffed S&P, saying the powerful agency, whose move sent borrowing costs sharply higher, “underestimated” the country's ability to tackle the problem.

“We believe S&P's negative outlook underestimates the ability of America's leaders to come together to address the difficult fiscal challenges facing the nation,” the Treasury Department said in a statement.

But the announcement sent global markets falling, including in China, where the Shanghai composite index dropped 1.91% on Tuesday in what dealers said was the after-effect of the S&P warning.

China is the top holder of U.S. debt, and had 868.4 billion invested in U.S. Treasuries at the end of August last year, U.S. data showed. Foreign reserve holdings at the end of March reached 3 trillion USD, after increasing 25% in the last twelve months.

Chinese central bank governor Zhou Xiaochuan said this week that the country was, in effect, suffering from too much money, which was in effect “feeding inflation and becoming difficult to manage”.

“Foreign-exchange reserves have exceeded the reasonable level that our country actually needs,” Zhou said.