US debt ceiling deal is double-edge sword for China

Updated: 2011-08-05 15:12

By Li Xiangyang (

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The roller-coaster debate over raising the US national debt ceiling finally concluded after the two parties made compromises. The Democratic Party-led administration removed the political restraint of debt default before the general election in 2012, and the Republican Party-led House of Representatives secured a promise to cut government spending over the next decade.

The two parties had threatened each other using the interests of global creditors, staging a preview of next year's general election. Meanwhile, the hidden trouble in the global financial market and economic recovery has temporarily been avoided.

The second round of quantitative easing adopted by the Federal Reserve ended one month ago, and the newly released US second-quarter economic growth rate fell far short of investors' expectations, standing at only a little more than 1 percent. Debates about the risk of a second economic slump in the United States and a third round of quantitative easing monetary policy can be heard without end.

Given the situation, raising the debt ceiling will undoubtedly boost the confidence of investors. It is foreseeable that even if the economic growth of the United States loses its momentum, the third round of the quantitative easing will unlikely be adopted in the near future. As the economic growth of the world's major economies is decelerating, the US debt ceiling deal is also good news to the world economy.

The confidence of investors was already particularly fragile because the international financial market was repeatedly attacked by the European sovereign debt crisis in the first half. The international financial market was in urgent need of the debt ceiling deal. This is why governments around the world, international economic organizations and even Wall Street all imposed pressure on the two parties of the United States government.

Global expectations for a deal to raise the US debt ceiling show that the US dollar remains the leading international currency. Republicans and Democrats have ignored the interests of creditors, trying to coerce the other side into submission. However, creditor countries have no choice but to increase holdings of US debt.

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