The subtle threat came first from Xia Bin, Finance Chief at China’s Development Research Centre.

He commented that China's holdings of $900bn in mixed bonds could be a 'bargaining chip' in talks with the US.

"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.

These remarks were followed up by another official implying that it was in China's power to destablise the dollar.

"China has accumulated a large sum of US dollars," said He Fan of the Chinese Academy of Social Sciences.

"Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency.

"The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar."

When asked about the remarks, President Bush expressed doubts that this was official Chinese policy -- but he took no chances and outlined his position clearly.

"That would be foolhardy of them to do that. If that's the position of the government, it would be foolhardy for them to do this," he said.

Henry Paulson, US Treasury Secretary, also expressed some cynicism about the provenance of the remarks, describing them as 'absurd.'

"We have tensions and we have to deal with tensions on both sides -- but overall, both of our countries are committed to a constructive economic relationships," Paulson said.

However, not everyone is sure that this is an empty threat.

“The words are alarming and unambiguous," said Simon Derrick, currency strategist at the Bank of New York Mellon.

"This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the sub-prime [mortgage] troubles."