China's Conundrum: Angry at U.S. but Trapped in Treasurys

Frustrated as it is over U.S. debt policy, China—America's biggest foreign creditor—is expected to continue buying Treasury bonds, mostly because the alternatives for parking its giant pool of foreign reserve are limited.

Yet Beijing's angry weekend response to news that Standard & Poor's had downgraded the U.S.'s top-notch credit rating is being seen as a powerful warning signal for U.S. politicians. As the holder of more than $1 trillion in Treasurys, China holds America's financial fate in its hands.

Any significant cutback of Treasury funding by China could push up long-term borrowing cost for the U.S. government, consumers and companies.

By Min Zeng