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China PLA officers urge economic punch against U.S.

February 11, 2010

Chris Buckley
February 9, 2010

BEIJING (Reuters) -- Senior Chinese military officers have proposed
that their country boost defense spending, adjust PLA deployments,
and possibly sell some U.S. bonds to punish Washington for its latest
round of arms sales to Taiwan.

The calls for broad retaliation over the planned U.S. 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.

The interviews with Major Generals Zhu Chenghu and Luo Yuan and
Senior Colonel Ke Chunqiao appeared in the issue published on Monday.

The People's Liberation Army (PLA) plays no role in setting policy
for China's foreign exchange holdings. Officials in charge of that
area have given no sign of any moves to sell U.S. Treasury bonds over
the weapons sales, a move that could alarm markets and damage the
value of China's own holdings.

While far from representing fixed government policy, the open demands
for retaliation by the PLA officers underscored the domestic
pressures on Beijing to deliver on its threats to punish the Obama
administration over the arms sales.

"Our retaliation should not be restricted to merely military matters,
and we should adopt a strategic package of counter-punches covering
politics, military affairs, diplomacy and economics to treat both the
symptoms and root cause of this disease," said Luo Yuan, a researcher
at the Academy of Military Sciences.

"Just like two people rowing a boat, if the United States first
throws the strokes into chaos, then so must we."

Luo said Beijing could "attack by oblique means and stealthy feints"
to make its point in Washington.

"For example, we could sanction them using economic means, such as
dumping some U.S. government bonds," Luo said.

The warnings from the PLA come after weeks of strains between
Washington and Beijing, who have also been at odds over Internet
controls and hacking, trade and currency quarrels, and President
Barack Obama's planned meeting with the Dalai Lama, the exiled
Tibetan leader reviled by China as a "separatist."


Chinese has blasted the United States over the planned $6.4 billion
arms package for Taiwan unveiled in late January, saying it will
sanction U.S. firms that sell weapons to the self-ruled island that
Beijing considers a breakaway province of China.

China is likely to unveil its official military budget for 2010 next
month, when the Communist Party-controlled national parliament meets
for its annual session.

The PLA officers suggested that budget should mirror China's ire
toward Washington.

"Clearly propose that due to the threat in the Taiwan Sea, we are
increasing military spending," said Luo.

Last year, the government set the official military budget at 480.7
billion yuan ($70.4 billion), a 14.9 percent rise on the one in 2008,
continuing a nearly unbroken succession of double-digit increases
over more than two decades.

The fresh U.S. arms sales threatened Chinese military installations
on the mainland coast facing Taiwan, and "this gives us no choice but
to increase defense spending and adjust (military) deployments," said
Zhu Chenghu, a major general at China's National Defence University in Beijing.

In 2005, Zhu stirred controversy by suggesting China could use
nuclear weapons if the United States intervened militarily in a
conflict over Taiwan.

The United States switched official recognition from Taiwan to China
in 1979. But the Taiwan Relations Act, passed the same year,
guarantees Taiwan a continued supply of defensive weapons.

China has the world's biggest pile of foreign currency reserves, much
of it held in U.S. treasury debt. China held $798.9 billion in U.S.
Treasuries at end-October.

But any attempt to use that stake against Washington would probably
maul the value of China's own dollar-denominated assets.

China has condemned previous arms sales, but has taken little action
in response to them. But Luo said the country's growing strength
meant that time has passed.

"China's attitude and actions over U.S. weapons sales to Taiwan will
be increasingly tough," the magazine cited him as saying. "That is
inevitable with rising national strength."

(Editing by Jeremy Laurence)
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