China is entering the Obama era on a defensive note. Angered by US charges that its glut of savings was the root cause for the global credit bubble, Beijing has chided Washington for being ungrateful and hinted at reviewing its long-standing policy of buying US debt.

“US policy mistakes and regulatory failings were the direct causes of this financial crisis and the roots of the United States’ massive trade deficit lie in its own economic structure and macro-economic polices,” said Zhang Jianhua, head of the central bank research bureau. Zhang was responding to remarks by exiting US Treasury Secretary Hank Paulson that super-abundant savings from fast-growing, emerging economies like China and the oil-exporting countries “laid the seeds of a global credit bubble”.

Paulson, who is “directly involved in dealing with the mountain of toxic assets top US financial institutions accumulated over the years, should know better about how serious financial mismanagement and regulatory failures are,” said an editorial in the China Daily. Rattled by the comments issued by someone credited with fostering a better degree of understanding between the two countries’ governments, China’s central bank convened a press conference to defend Beijing’s record. Xuan Changneng, head of financial research at the bank, said it was irresponsible of the US to point fingers at emerging economies for America’s ills. “Some countries should learn the concept of accountability and reflect on their own policy of self-criticism,” Xuan said. Although the remarks that caused the offence were by an outgoing US top official, Beijing is well aware that a change of administration would do little to quiet a growing chorus of US politicians complaining about China’s currency polices and its trade surplus. China, which has been increasing its share of the US import market for manufactured goods, set another trade surplus record in November, at 40.1 billion dollars.

The latest rift between US and Beijing comes at a bad time for both countries. Last week, the Obama told the American public that it should get used to the prospect of “trillion-dollar deficits for years to come”, as the new administration seeks to finance its multibillion dollar economic stimulus package. China, which sits on 1.9 trillion dollars worth of foreign exchange reserves, has been a key buyer of US debt instruments in the past. More than two-thirds of its reserves are held in US treasuries and in September it became the largest US creditor, taking over from Japan. China claims it has protected American financial stability by continuously purchasing its treasury bonds. But some US economists say that the easy availability of Chinese credit pushed US interest rates lower and helped fuel an unprecedented consumption spree and housing bubble. With job losses mounting and factory closures on the rise, Chinese mainland banks have been advised to keep more money at home and lend it to local governments and companies to maintain economic growth. — IPS