China is sure the US will raise the debt ceiling and avert a default

China believes the United States will be able to come out of its debt crisis and resolve an impasse related to raising debt ceiling with no need to be declared a default. China is interested in having US on a high level as it is the biggest foreign creditor and the dollar decline would have a negative impact on its economy.

Chinese advisers think that the deadlock in budget negotiations would not prevent the US authorities to come to a decision to raise the debt ceiling.

“If they don’t raise the debt ceiling, will the American economy be able to go on? The two parties are just playing political games,” Xia Bin, who holds an academic seat on the monetary policy committee of the People’s Bank of China, told the Financial Times. “The chance that they don’t raise the ceiling is very small.”

Meantime, Mr Xia said that China still needed to speed up the diversification of its foreign currency investments away from US assets because the dollar was set to decline in coming decades.

His view was supported by Zhang Ming, a researcher in the Chinese Academy of Social Sciences, a top government think-tank in Beijing.

“Before August 2, there will be quite a satisfactory solution, at least in the short term. The risk is very low of a sudden US debt default,” he said. “So buying US debt is not a short-term risk. It’s more medium term, because of the potential for big dollar depreciation or for U.S. inflation.”