The largest foreign holder of U.S. treasuries responds to the S&P downgrading by calling for decreases in U.S. military outlays and social spending.

By David Pierson Los Angeles Times Staff Writer
August 6, 2011, 1:52 a.m.

Reporting from Beijing— China called on the United States to “cure its addiction to debts” and “learn to live within its means” in a searing commentary published Saturday by the official New China News Agency in response to Standard & Poor’s historic downgrading of the U.S. government’s credit rating a day earlier.

China, the largest foreign holder of U.S. federal debt, blamed “short-sighted political wrangling in Washington” for creating the current financial morass that now threatens to undermine the global economy.

“China, the largest creditor of the world’s sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets,” the commentary said.

“If no substantial cuts were made to the U.S. gigantic military expenditure and bloated social welfare costs, the downgrade would prove to be only a prelude to more devastating credit rating cuts, which will further roil the global financial markets all along the way,” it continued.

China has regularly voiced concern about its dollar investments, most recently Wednesday when the governor of the country’s central bank urged the U.S. to avoid a default and cut its deficit.

In addition to holding about $1.2 trillion in treasuries, an estimated two-thirds of China’s $3.2 trillion in foreign exchange reserves is estimated to be in dollars.

Standard & Poor’s downgrading was the first in U.S. history and echoed downgrades issued by a little-known Chinese credit rating agency that has been dismissed by some China watchers as politically motivated.

The Dagong Global Credit Rating Co. twice lowered its rating for the U.S., most recently Wednesday when it said defects in the U.S. political structure stood in the way of solving the country’s debt problems.

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