China and the U.S. have a very special relationship based around the tremendous debt that the Chinese hold from the United States. Apparently, the PLA believes that gives them leverage. Reuters reports:
Senior Chinese military officers have proposed that their country boost defense spending, adjust PLA deployments, and possibly sell some US bonds to punish Washington for its latest round of arms sales to Taiwan.The calls for broad retaliation over the planned US weapons sales to the disputed island came from officers at China's National Defence University and Academy of Military Sciences, interviewed by Outlook Weekly, a Chinese-language magazine published by the official Xinhua news agency.
This would definitely be bad for China. Much of the Chinese economy is based upon a low labor price which allows export prices to remain artificially low vis-á-vis the U.S. If the Chinese were to sell off a large portion of American debt, they would put pressure on their own currency. Moreover, while the sudden increase in U.S. securities on the market might make securing new US debt expensive, ultimately the change in the currency rates might encourage a re-balancing of the trade balance, which ultimately benefits the United States.
All this might be immaterial, insofar as the Chinese seem to realize this, even if the PLA doesn't.
