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ROBERT SIEGEL, host: At last count, the Chinese government owns almost $1.2 trillion of U.S. Treasury debt, and Chinese officials have been quietly expressing their concern. But as NPR's Louisa Lim reports, Beijing's options are limited.

Secretary HILLARY CLINTON: Well, it is a pleasure...

LOUISA LIM: As Hillary Clinton met a senior Chinese official, Dai Bingguo in Shenzhen on Monday, the mood was friendly. But behind the scenes, anxiety in China is rising as the minutes tick closer towards that August 2 deadline. Earlier in Hong Kong, Clinton had tried to calm Chinese nerves.

CLINTON: So, I'm confident that Congress will do the right thing and secure a deal on the debt ceiling and work with President Obama to take the steps necessary to improve our long-term fiscal outlook.

LIM: State Department officials now admit China's been using diplomatic channels to express its concern. It's sent several official demarches urging Washington to abide by its financial commitments. Publicly, Chinese officials are still holding out hope that a default won't happen, arguing that it would betray the national U.S. interest. Huang Weiping, an economist from Renmin University echoes what many believe to be true.

HUANG WEIPING: We believe maybe a last minute deal will be reached.

LIM: In any case, there's little that China can do. Few believe Beijing would be willing to use its debt as a weapon, since any move to sell off treasuries would move the market, harming the value of its own holdings. And even if there was a downgrade of U.S. sovereign ratings, Patrick Chovanec from Tsinghua University says it probably wouldn't change that much.

PATRICK CHOVANEC: I think they're very concerned, but in many respects, the Chinese, whether they like it or not, are along for the ride. By and large, they're stuck holding treasuries and in fact, they're stuck buying more because it's embedded in their growth model. There are no markets that are as deep and liquid as the U.S. Treasury market for them to put all their dollars.

LIM: For the past three years, China has tried to diversify its foreign exchange holdings away from U.S. treasuries. Some, like Huang Weiping, wonder if that asset diversification should now be sped up.

WEIPING: Maybe in the future, China will buy not much as before for the Treasury bills. But maybe we do more kinds of ODI - that means outward direct investment - either into USA and into other kind of economies. This is maybe kind of thing to replace these kinds of the Treasury bills.

(SOUNDBITE OF MUSIC)

UNIDENTIFIED GROUP: (Singing) We're both superpower economies, locked in a battle over monetary policy. For social stability, we've got to export. And we're sick of being the consumers of last resort.

LIM: This satirical Taiwanese rap song dates back to last year, but its point about the economic co-dependence between China and the U.S. is as true as ever today. Patrick Chovanec says despite being the banker, China's still in a vulnerable position.

CHOVANEC: If you owe the bank a million dollars, the bank owns you. If you owe the bank a billion dollars, you own the bank. Right now, the problem that China's in is that its owed two trillion dollars - in dollars at least. Even though supposedly they're the creditor, they're in a weaker position, because they're not a creditor by choice, and not in their own currency.

(SOUNDBITE OF MUSIC)

UNIDENTIFIED GROUP: (Singing) They're not enemies, but frenemies, with co-dependent economies.

LIM: One outspoken Chinese official, Mei Xinyu, has said this crisis shows up the ugliest aspects of the U.S. political system. And a Chinese paper, the Global Times, is accusing the U.S. of hypocrisy for lecturing other countries about democracy while depending on those same countries to bail it out from its economic quagmire. Louisa Lim, NPR News, Beijing.

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