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China Briefings

Reports on China issued by Samsung Economic Research Institute

China Business Intelligence No. 204

China Business Intelligence No. 204

Samsung Economic Research Institute Beijing Office

Sept. 14, 2011

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S&P cut the long-term US credit rating from AAA to AA+ mainly due to high political and fiscal risks including debt burden. As the biggest holder of US Treasury bonds and trade partner to the US , China will also be hit by the credit rating cut. The downgrade will damage China ' s exports, as it will reduce spending in the US and raise inflationary and liquidity risks, as foreign investors will look at China to avoid risks in the US. In response, China will reduce its dollar dependency through diversification of investments. It plans to increase gold reserves, reduce use of the dollar to make the yuan widely used on the world market and make a shift in its export-driven economic growth model.

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