China, the top holder of US debt, urged Washington to put its fiscal house in order Thursday after a third ratings agency issued a warning over a possible US debt default. "I'd like point out that we hope the United States can adopt effective measures to improve its fiscal situation," foreign ministry spokesman Hong Lei told reporters.
Ratings agency Fitch warned Wednesday that the United States could lose its sterling credit rating if it fails to raise its debt ceiling to avoid defaulting on loans. The third of the three big ratings houses to issue such a warning, Fitch said the country needed to beat the August 2 deadline for raising its $14.29 trillion borrowing ceiling to avoid seeing its bonds lose their top-grade AAA rating.
Speaking during a regular news briefing, Hong said China hoped the United States would act on the debt crisis to help "maintain international financial market stability and promote stable and sound development of the global economy." He did not call for any specific US steps. Fitch said that slashing spending to eliminate the need to borrow more was not a real alternative to a hike in the borrowing ceiling.
In Washington, Republicans and Democrats are struggling to reach a deficit cutting deal - a key Republican demand for voting in favour of a debt limit increase. China is by far the top holder of US debt and has in the past raised worries that the massive US stimulus effort launched to revive the economy would lead to mushrooming debt that erodes the value of the dollar and its Treasury holdings.
China cut its holdings of US Treasury securities in March for the fifth month in a row, US data showed last month. Its holdings fell to $1.145 trillion in March, down $9.2 billion from the previous month and down $30.4 billion, or 2.6 percent, from last October's peak of $1.175 trillion.
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