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Chinese see U.S. debt as weapon in Taiwan dispute

February 13, 2010

Bill Gertz
The Washington Times
February 10, 2010

China's military stepped up pressure on the
United States on Monday by calling for a
government sell-off of U.S. debt securities in
retaliation for recent arms sales to Taiwan.

A group of senior Chinese military officers also
said in state-controlled media interviews that
Beijing's leaders should boost defense spending
and expand force deployments in the wake of the
Pentagon's announcement last month of a new $6.4
million arms package for the island state claimed by Beijing.

Senior officers from the Chinese National Defense
University and Academy of Military Sciences made
what some view as an economic warfare threat,
something outlined in past military writings.

The comments by Maj. Gen. Zhu Chenghu and Maj.
Gen. Luo Yuan and Senior Col. Ke Chunqiao
appeared in the state-run Outlook Weekly
magazine, part of the Xinhua News Agency, published in Beijing on Monday.

Gen. Luo warned that China could attack the U.S.
"by oblique means and stealthy feints," and he
called for retaliation for the arms sale.

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

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

China holds nearly $800 billion worth of Treasury
debt securities. It is not clear what impact
selling off some of the securities would have on
the struggling U.S. economy. However, analysts
say that selling off some bonds could drive up
interest rates and disrupt U.S. economic recovery efforts.

At the State Department, spokesman P.J. Crowley
dismissed the economic threat as potentially
self-defeating. "That would be biting the nose to
spite the face," Mr. Crowley said. "The economies
of the United States and China are intertwined."

The Chinese military comments, however, reflect
the contents of a 1999 book by two Chinese
colonels called "Unrestricted Warfare," which
called on the Chinese military to adopt
unconventional methods and strategy in waging
war, specifically both "financial" and "trade"
war along with other forms of warfare.

The second officer, Gen. Zhu, said Monday that
proposed U.S. arms sales to Taiwan threatens
Chinese military bases along the southern coast
across the 100-mile Taiwan Strait. "This gives us
no choice but to increase defense spending and
adjust [military] deployments," said Gen. Zhu,
who is with the National Defense University in Beijing.

Gen. Zhu made headlines in 2005 when he told
reporters that China would use nuclear weapons to
attack U.S. cities if the United States struck
China with precision-guided conventional missiles.

The statement raised questions at the time among
Pentagon officials over whether China had
abandoned its stated policy of not being the
first to use nuclear weapons in a conflict.

After the remarks, China's government sought to
play down the incident by quietly putting out
word to Western journalists that Gen. Zhu had
been demoted, a claim accepted by many U.S. China
hands but one that was called into question by
his comments in the magazine this week.

The military leaders' comments are unusual
because tightly controlled state-run media in
China normally do not permit such provocative
comments directly criticizing the United States to be published.

China's military has no apparent control over the
country's financial policies, although the
military remains a powerful force in the
communist system where ultimate power resides in
the Central Military Commission, headed by
Chinese President Hu Jintao along with two key generals as deputies.

Pentagon officials have expressed concerns in
recent years that China's military may be acting
outside its political leadership. They pointed to
differing explanations by Chinese military and
civilian leaders regarding the secret January
2007 anti-satellite missile test, and a
perplexing incident in 2007 when the aircraft
carrier USS Kitty Hawk had permission to dock in
Hong Kong for Thanksgiving but was turned away by
Chinese authorities upon nearing the port.

The last time Chinese officials raised economic
threats against the United States was 2007 when
two economic officials warned of what some called
the "nuclear option" — a campaign of economic
threats — meant as a political weapon to counter
opposition in Congress to China's currency
manipulation that has undermined the U.S. dollar.

The Chinese military officers said China's next
defense budget, expected to be made public in
February, should reflect Beijing's opposition to the Taiwan arms sale.

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

Gen. Luo said China must change its approach to
the United States and assert its power. "China's
attitude and actions over U.S. weapons sales to
Taiwan will be increasingly tough," he said.
"That is inevitable with rising national strength."

John Tkacik, a former State Department China
specialist, said China's Central Military
Commission has the power to order financial
measures such as selling U.S. securities, although it is a complex process.

"The Chinese military now believes that China has
tremendous economic and financial leverage,
especially over the United States, and they are
giving fair warning to the world that they will use it when they can," he said.

The Obama administration, like its predecessors,
has said U.S. arms sales to Taiwan are authorized
under the 1979 Taiwan Relations Act, passed by
Congress in the aftermath of the shift in
diplomatic recognition from Taiwan to mainland
China. The act authorizes sales of defensive arms.

China's government has rejected the U.S.
justification, claiming that U.S.-China joint
communiques outlining relations call for limiting
and eventually ending all arms sales to Taiwan.

China and the United States have clashed in
recent weeks on a number of issues in addition to
the Taiwan arms sale, including Beijing's
opposition to the upcoming meeting between
President Obama and the exiled Tibetan Buddhist leader, the Dalai Lama.

Secretary of State Hillary Rodham Clinton also
criticized China recently for tightening controls
on the Internet, which she suggested was a violation of basic freedom.

The administration also has sought the Chinese
government's explanation for the recent computer
attack on the Internet giant Google and several
other U.S. high-technology firms, suggesting that
Beijing was behind the computer intrusions and data theft.

China's military spending has increased sharply
over the past decade as part of China's
semi-secret military buildup that has involved
new deployments of advanced ballistic and cruise
missiles, large numbers of new warships and
submarines, new advanced fighter bombers and
various high-tech weapons ranging from computer
network attacks and anti-satellite weapons.
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