PLA Threatens Chinese Economy

Derek Scissors and Dean Cheng / February 11, 2010

China’s People’s Liberation Army (PLA) this month has been trying to threaten the U.S. economically. However, their plan could actually harm China, not America.

Many, many Chinese see reunification with Taiwan as a deep emotional issue. But much of the PLA sees it as a way to pad the military budget. Any attention to Taiwan has Chinese generals demanding some sort of strong action or another, while naturally observing that the controversy justifies more money for them.

This happened again with the recent announcement by the Obama Administration that it will provide limited arms to Taiwan. The PLA trotted out its most bellicose officers. These worthies promptly argued, among other things, that China should respond to the arms sale with a bond sale, selling down holdings of American bonds.

Bring it on, guys.

The idea that China has important influence over the United States through its bond holdings is a myth. If a picture is worth a thousand words, the graphic to the right should be particularly valuable.

There are only two real economic possibilities: (more…)