China has been rumbling about selling US assets recently. They did not say they would get rid of their Treasury holdings, but golly, that is the next step to slowly back away from all US denominated assets. Just mentioning the sale of assets in the same breath as retaliation for arms sales shows how the Chinese government has viewed their economic policies not just from a pure econ standpoint. It's not just so economic growth keeps the natives happy while the government oppresses them. It's another weapon in their military's arsenal. A weapon they can use without firing a shot.
People argue the Chinese would not sell the Treasuries as it would destroy their total hoard. Not completely true. They could buy protection from interest rate spikes on their existing hoard in advance and then make one of those block sales to hurt the US big time. Their hedge on interest rate spikes would offset their losses caused by their own block sale. Add to this the idea that the Chinese do not USE those reserves right now for anything. What is it to them if their hoard of trillions loses 20% in a swoop if it absolutely destroys the US economy/government/society? The reserves just sit there. Believe me, the Chinese people really want to use that money.
I blogged about this almost 5 years ago. I also love how my criticism of the GOP is representative of how they lost socially moderate fiscally conservative voters. Only now, as they have lost power & face a mass movement of Tea Partiers, do they find their principles again.