Even the humble ChuTian Metropolis Daily reports: “President Obama apologized to Mr. Wen, and assured the Premier that China’s U.S. investments were safe.” Dealbreaker and Brad Setser both have good summaries. From Setser: 

… Chinese policy makers are caught between a rock and a hard place — as Chinese policy makers cannot choose between different fundamentally conflicting objectives.

1) China both wants to maintain the RMB’s link to the dollar and avoid adding to its already large dollar exposure. Yet so long as China pegs to the dollar and runs a sizable current account surplus, it is hard to see how China can avoid adding to its dollar holdings.**

2) China is torn between its interest as a creditor and its interests as an exporter. China’s commercial interests would be best served by an even larger US stimulus, one that helped spur US demand for China’s goods. China’s reserve managers though worry that the US won’t be able to finance a large stimulus and thus are worried that a rise in Treasury supply would reduce the value of China’s existing Treasuries…

And the Chinese will probably move more of their purchases into treasuries (as a percentage of total holdings) given the sorry state of just about everything else. From my limited perspective, I remain optimistic – then again I’m in the position of holding a U.S. citizenship and am capable in Chinese language. 

So here’s the plan: Put California up as collateral for U.S. Treasuries. Cede California to the People’s Republic if things get ugly (I mean, 1) why on earth do we want to keep it and 2) California already has a very nice Chinese name – it’ll fit right in). Seriously, even in worst case scenario, everyone will be fine. Chinese people are very charming, and life here is so idiosyncratic as to be entertaining. It isn’t *that* bad.