China bursts over U.S. debt dilemma, calls for dollar slip

China severely criticized the USA for its "debt compulsion" and "short viewed" political backbiting and said the world required a fresh steady global reserve currency.

In a strictly-worded clarification by the official Xinhua news agency on Saturday, China gave its first official remarks on the America’s losing its gilded AAA long-term credit rating from Standard & Poor's.

"China, the biggest creditor of the world's only superpower, has every right now to demand the United States address its structural debt problems and make sure the security of China's dollar assets," Xinhua said.

China also recommended the United States to relate "rational" to "heal its compulsion to debts" by eliminating military and social welfare expenses.

"The U.S. government has to come to terms with the aching reality that the good old days when it could just borrow its way out of messes of its own making are ultimately gone," Xinhua wrote.

China further said credit downgrades would very probably weaken the world economic recovery and activate new rounds of financial chaos.

"Global management over the issue of U.S. dollars should be initiated and a new, steady and secured global reserve currency may also be an alternative to turn away a disaster caused by any single country," Xinhua said.

Chinese economic advisers said the U.S. credit rating downgrade posed a biggest hazard to financial markets and they considered it to prompt China, the world's largest possessor of U.S. Treasuries, to speed up the diversification of its possession.

S&P hack the United States' rating to AA-plus on fears over the government's budget deficits and mounting debt burden. The move is probably to raise borrowing costs finally for the U.S. government, companies and consumers.

"There would be turmoil in global financial markets no less than in the short term. The most direct effect for China would be the hit on its reserves. The value of China's dollar investments will drop and the lessening effect may be massive," said Li Jie, a director at the Reserves Research Institute at the Central University of Finance and Economics.

Last this week, China had advised Washington to act sensibly to deal with its debt issues, saying doubts in the U.S. Treasuries market will weaken the global monetary system and hamper international development.

Beijing has again and again advised Washington to secure its dollar investments, expected by analysts to account for about two-thirds of its $3.2 trillion in foreign exchange reserves, the world's biggest.

"China will be required to think other investments for its reserves. U.S. Treasuries aren't as secure anymore. There is a class of assets out there that are more dangerously than AAA, but less risky than AA+. China didn't think these investments before, but now it would be enforced to do so," Li said.

Prior this week, the United States hardly avoided a default after lawmakers from across the political divide came together to forge a deal that would raise the country's borrowing authority after weeks of unforgiving partisan fights.

S&P's downgrade may also push the United States to simplicity monetary policy more, causing even more vagueness in international markets, said Ding Yifan, a deputy director at the Development Research Center, a think tank under the State Council.

"I consider the opportunity of the United States initiating further round of quantitative lessening is going up as outside investors may effort to avoid dollar assets, leaving the Fed with no option but to acquire their own Treasuries," Ding said.

"If the United States actually introduces QE3, it will absolutely add more reservations to the international economy and could push up the prices of global supplies," he added.

The U.S. Federal Reserve holds its next policy-setting meeting on Tuesday. Economists see slightest opportunity that the Fed will pronounce an additional round of bond buys then.