John At The Center

Their main concern? That the US government wouldn’t backstop bonds that China thought had the implicit backing of the US government. China wouldn’t mind at all if the US provided a full faith and credit guarantee to the Agencies — or to any other financial institution that China had lent money to — even if this meant a larger US government debt stock

Remember that a good chunk of those “corporate bonds” are likely to be bank bonds. The implication is that China doesn’t want to take a loss if a bank is nationalized or goes bankrupt. Isn’t that a surprise?

via The Foreign Policy of China’s Reserves and the Trade Bubble – BusinessWeek.