Senior Chinese Military Officers Join Iran In Delivering "Punch" To U.S., Propose Selling Treasuries As Arms Sales Punishment

And you were worried about Iran. China's People Liberation Army has come out and openly said that the nuclear option, i.e., selling US Treasuries, is now on the table and should be exercised as "punishment" for U.S.' arms sales to Taiwan. China undoubtedly realizes that this is a prime example of sado-masochism as the resultant plunge in Treasuries that would follow would hurt the US certainly, but also have a "mild to quite mild" impact on China's $700 (and likely much greater) UST holdings. Game theory 101 just got interesting.

From Reuters:

Senior Chinese military officers have proposed that their country boost defense spending, adjust PLA deployments, and possibly sell some U.S. bonds to punish Washington for its latest round of arms sales to Taiwan.


The calls for broad retaliation over the planned U.S. weapons sales to the disputed island came from officers at China's National Defence University and Academy of Military Sciences, interviewed by Outlook Weekly, a Chinese-language magazine published by the official Xinhua news agency.


The interviews with Major Generals Zhu Chenghu and Luo Yuan and Senior Colonel Ke Chunqiao appeared in the issue published on Monday.


The People's Liberation Army (PLA) plays no role in setting policy for China's foreign exchange holdings. Officials in charge of that area have given no sign of any moves to sell U.S. Treasury bonds over the weapons sales, a move that could alarm markets and damage the value of China's own holdings.


While far from representing fixed government policy, the open demands for retaliation by the PLA officers underscored the domestic pressures on Beijing to deliver on its threats to punish the Obama administration over the arms sales.


"Our retaliation should not be restricted to merely military matters, and we should adopt a strategic package of counter-punches covering politics, military affairs, diplomacy and economics to treat both the symptoms and root cause of this disease," said Luo Yuan, a researcher at the Academy of Military Sciences.

Not only that, but China is now openly escalating vis-a-vis Taiwan.

Chinese has blasted the United States over the planned $6.4 billion arms package for Taiwan unveiled in late January, saying it will sanction U.S. firms that sell weapons to the self-ruled island that Beijing considers a breakaway province of China.


China is likely to unveil its official military budget for 2010 next month, when the Communist Party-controlled national parliament meets for its annual session.


The PLA officers suggested that budget should mirror China's ire toward Washington.


"Clearly propose that due to the threat in the Taiwan Sea, we are increasing military spending," said Luo.


Last year, the government set the official military budget at 480.7 billion yuan ($70.4 billion), a 14.9 percent rise on the one in 2008, continuing a nearly unbroken succession of double-digit increases over more than two decades.

Next question: will China follow through on the increasingly populist sentiment to hurt the U.S. If the U.S. is any indication of the strength of populist anger, now may be a good time to take some "profit", or book the loss as the case may be, in that 30 Year position.