* C.bank Governor welcomes passage of U.S. debt deal
* Warns choppy Treasuries may hurt growth, financial system
* U.S. debt a "ticking bomb", debate a "mad-cap
* China rating agency downgrades U.S. credit rating
(Adds Xinhua commentary)
By Samuel Shen and Lan Wang
SHANGHAI, Aug 3 China's central bank governor
urged Washington on Wednesday to act responsibly to deal with
its debt, saying uncertainty in the U.S. Treasuries market will
undermine the international monetary system and hamper global
The remarks by Zhou Xiaochuan, head of the People's Bank of
China, marked China's first official response to the passage of
a U.S. deficit-cutting deal hammered out in Washington to avert
a debt default.
They were published on the central bank's website and
contrasted with a harsher tone adopted by Chinese media.
The state Xinhua News Agency said the squabbling in
Washington had been a "madcap farce" and it described U.S. debt
as a "ticking bomb."
"It is advisable that one should not mess around on the edge
of an abyss," Xinhua said in a commentary piece. As an official
media outlet, the agency is believed to reflect Beijing's
thinking, although its comments are not directly approved by top
The Chinese comments come after weeks of bitter wrangling
among U.S. lawmakers that alarmed financial markets and brought
the country to the brink of a debt default that some pundits
predicted would be a catastrophic.
As the largest foreign creditor to the United States, China
is particularly vulnerable to U.S. debt strains.
Beijing has repeatedly urged Washington to protect its
dollar investments, estimated by analysts to account for about
two-thirds of its $3.2 trillion in foreign exchange reserves,
the world's largest.
The PBOC's Zhou welcomed U.S. progress in dealing with its
debt problems but called on Washington to take "concrete and
responsible" measures to bolster confidence in U.S. Treasuries,
of which China is a major buyer.
"Big fluctuations and uncertainty in the U.S. Treasury
market will influence the stability of international monetary
and financial systems, thus hurting the global economic
recovery," Zhou said in the website statement.
"We hope that the U.S. government and the Congress will take
concrete and responsible policy measures ... to properly deal
with its debt issues, so as to ensure smooth operation of the
Treasury market and investor safety."
U.S. President Barack Obama signed into law on Tuesday a
measure to cut spending and raise the U.S. debt ceiling.
"We welcome such progress," Zhou said. "We will further
study details of the measures and closely monitor how they would
be implemented in various stages."
Markets are now waiting to see if credit rating agency S&P
cuts the prized U.S. AAA rating. The debt plan calls for savings
of $2.1 trillion over 10 years, nearly half the amount S&P has
said would be enough to support the current rating.
Moody's and Fitch confirmed their AAA ratings on Tuesday but
threats of future downgrades remained.
A Chinese ratings agency cut its rating for the United
States to A from A-plus, putting it on a par with the likes of
Spain and Estonia. It said the debt deal does not improve the
nation's debt-paying ability in the long run.
China has said it intends to diversify away from U.S.
Treasuries, a policy Zhou reiterated on Wednesday.
However, Li Xiangyang, a researcher at the Chinese Academy
of Social Sciences, called on China to stop investing its
foreign exchange reserves in dollar assets to make China less
vulnerable to fluctuations in the value of the dollar.
"The raising of the U.S. debt ceiling is a double-edged
sword for China," Li wrote in an article published in the
People's Daily's overseas edition.
Still, China has few attractive alternatives. The euro, the
best dollar alternative, is mired in the bloc's debt crisis.
China has lobbied for the IMF's Special Drawing Right to
become a dollar substitute as a reserve investment, but accepts
such a system would take years to adopt.
"SOWING THE SEEDS"
Xinhua's commentary was the latest scolding of Washington
dished out by China's media during the U.S. debt crisis.
It said global investors had been kidnapped not only by the
U.S. economy but also by the domestic political squabbles.
"The madcap farce of brinkmanship has disclosed yet another
ticking bomb in the heartland of the sole superpower in the
world -- the crippling tendency to politicise the economics
while trivialising the politics," Xinhua said.
"Should Washington continue to turn a blind eye to its
runaway debt addiction, its already tarnished credibility will
lose more luster, which might eventually detonate the debt bomb
and jeopardise the well-being of hundreds of millions of
families within and beyond the U.S. borders."
It added that the debt deal would not get to the root of the
problem, instead sowing the seeds for future debt risks.
"Now, it may become a consensus of the global market that
there are risks in U.S. Treasuries and that it's best not to get
involved too much with them," said the commentary.
The U.S. plan to cut spending might mean a slower U.S.
recovery that could drag on China's own economic growth, some
Chinese economists warned.
"U.S. consumption will definitely be hurt by the austerity
deal and we can no longer count on the once-biggest foreign
market in the future," said Ding Yifan, a researcher at the
Development Research Centre under the State Council.
He added that the U.S. debt problem could spur China to
hasten its economic restructuring, which aims to lessen a
reliance on external demand and increase the focus on domestic
"Such a shift could also warrant an end to a quick
accumulation in foreign exchange reserves and reduce our
exposure to the turbulence in U.S. treasury market," he said.
(Additional reporting by Carrie Ho; Editing by Ken Wills and