China, the largest holder of US debt, can finally breathe a sigh of relief: the US government has agreed to raise its debt-ceiling, avoiding a potential default.
Still, it hasn't been an easy couple of weeks for Chinese policymakers. If the tone of China's state-run newspapers are any indication, policymakers are not pleased with the way Washington handled the debt talks.
Last week, state-run news agency Xinhua said that while the "ongoing tug of war in Washington is Uncle Sam's own business...the ugliest part of the saga is that the well-being of many other countries is also in the impact zone when the donkey and the elephant fight."
Stephen Roach at Morgan Stanley, a non-Chinese, said that "senior Chinese officials are appalled at how the United States allows politics to trump financial stability."
Here are snippets of what the Chinese papers have said in the days leading up to the dramatic vote on Monday:
American politics is facing a political showdown. If Congress and the White House cannot reach a compromise to raise the debt ceiling by Aug 2, the federal government will have to either shut down part of its operations or default on some of its debts. Shockwaves will debilitate the markets in either case, and the global economy's fragile recovery will probably be reversed, and another recession could follow.
Because of these dire consequences, it is highly unlikely that Congress and the White House will fail to reach an agreement by Aug 2, unless hardliners in the Republican camp are crazy enough to trade the country's fate for President Barack Obama's scalp.
Most people believe that a short-term agreement is likely to be reached between the Republicans and Democrats to raise the debt ceiling for a short period, say by three months. But the debt issue is a hostage that Republicans are using to undermine Obama's re-election bid.
The most important newspaper in China, the People's Daily, has urged politicians in the United States to put aside politics and avoid a debt crisis from developing into another financial disaster for the world.
China is the biggest foreign holder of US government debt with well over US$1.1 trillion invested. More than one half of its US$3.2 trillion of foreign exchange reserves are estimated to be held in dollar assets.
The People's Daily commented that the handling of the debt crisis was "irresponsible" and even "immoral." It blamed the US two-party democratic but partisan political system for the fiscal "farce," saying "not a single senator or representative has considered the world, and even US' own national interests are being banished from their mind."
Both Democratic and Republican leaders have repeatedly vowed not to allow their country to go into default, attesting to the popular speculation that they are just trying to secure maximum political gain from the bargaining before it is too late to reach a deal.
However, as the Western proverb goes, do not count your chickens before they are hatched. A plethora of factors could just pop up and jumble those politicians' calculus, making the negotiating process spin out of control and leaving the world economy tumbling in the shock waves.
It is arguably true that the ongoing tug of war in Washington is Uncle Sam's own business, as the United States has not yet defaulted on its debt. However, the ugliest part of the saga is that the well-being of many other countries is also in the impact zone when the donkey and the elephant fight. The potential collateral damage is way too heavy.
With leadership comes responsibility. It is unfortunate and disappointing that when political leaders in Washington spar over who is doing good for their country, they take little account of the world's economic soundness.
Roach says China is "shocked" and "appalled" at the US - FT Tilt
How China would react to a US downgrade - FT Tilt
Full coverage of US debt woes - FT Tilt