Taking out debt from China

There is a lot of scapegoating going on for this financial crisis (think greedy traders, insipid wall street managers, delinquent regulators), but there is one usual suspect who has been left out so far: China. This time around, hardly anyone is talking tough about the People’s Republic…because we need them desperately.

It would be enough that the Chinese own the second-most United States’ treasury bonds of any foreign nation (about $518 billion as of July). Almost certainly, if the bail out goes forward, that number will rise.

These days, private banks are creditors too. There was a small panic when rumors spread that China had ordered its banks to stop extending credit to U.S. financial institutions as they have been in previous months. The China Banking Regulatory Commission denied the claim, saying that business was going forward as usual. Traders say otherwise.

True or not, the point of the scare remains. We are more interdependent than either country might care to admit. China has taken the hint; last week, it asked banks to disclose their stakes in United States’ firms. The government cut interest rates for the first time in six years to boost the markets.

So we’re in it together. But lending a hand to a friend in crisis? Not quite.