China downgrades US credit rating - What's the impact?

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China's statecontrolled credit rating agency, Dagong Global Credit Rating Co, has pushed US rating into negative territory.

The move might mean drastic cut in China's purchases of US bonds, which will put pressure on US borrowings. China is the largest foreign holder of US debt, with holdings amounting to $1.15 trillion as of April 2011 end.

"This incident will definitely exert its continuous impact on investors' confidence in US Treasury bonds, affecting the stability of the US debt income ," Dagong said on Wednesday while announcing it has cut the credit rating of the United States from A+ to A with a negative outlook.
Dagong said the United States has to reduce no less than $4 trillion in its fiscal deficit in the coming five years to sustain its liability scale.

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