Kudlow says China will not sell US debt despite coronavirus feud

Beijing is the second-largest owner of U.S. government debt

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President Trump's chief economic adviser Larry Kudlow said Tuesday he does not believe China will sell U.S. debt, despite escalating tensions between the world's two largest economies over the novel coronavirus outbreak.

"I don’t believe they’ll sell our debt, because those are the crown jewels of their foreign exchange reserves," Kudlow told FOX Business' Maria Bartiromo. "And of course they would lose even more money by doing that. It’s like catching a falling knife."

Beijing is the second-largest owner of U.S. government debt, holding more than $1.1 trillion worth of treasuries.

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The latest flare-up has reignited concerns that China could weaponize its holdings and flood the markets with U.S. bonds. Last week, President Trump and other White House officials directed a government retirement fund to halt ts plans to invest in Chinese stocks this year.

At issue was whether administrators of the Thrift Savings Plan — a retirement savings plan similar to a 401(k) for federal employees and members of the military — should be allowed to move to a benchmark index that includes Chinese companies the U.S. has accused of committing human rights abuses.

"Look, the solution here is for the Chinese to open up their investment system and to play according to the rules set by long-time authorities in the U.S.," Kudlow said.

Relations between China and the U.S. have iced over since the virus outbreak began earlier this year, with the two nations engaging in a vicious war of words.

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The Chinese government has been widely criticized for its initial response to the virus and is frequently attacked by President Trump.

"We could cut off the whole relationship," Trump said during an interview with FOX Business last week.

The central leadership has tried to shift blame to local authorities, including for censuring doctors who tried to warn the public about the disease, The New York Times reported. Health authorities in the country first learned about the outbreak after unknown whistle-blowers leaked two internal documents online.

A recent report, whose authors include an expert from Wuhan's Municipal Center for Disease Control and Prevention, found that if China had taken aggressive action just a week earlier in mid-January, the number of infections could have been reduced by two-thirds.

The feud over the virus, however, has spilled into a broader fight over trade and technology.

"The solution for China is to not sell U.S. bonds, which would bankrupt the Chinese government," Kudlow said. "The solution for China is to put some transparency and openness into it."

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