Fed Chairman Ben Bernanke's "exit strategy" from the capital markets may be setting the United States on a collision course with China, which could have more influence over borrowing costs here at home than the central bank itself.

How is that possible? Based on Bernanke's latest comments, the United States is on track to end a major aspect of its economic rescue program. The Fed is scheduled next month to halt purchases of asset-backed securities under two remaining programs. One part of the program already ended. "These two facilities will also be phased out soon," Bernanke said in testimony before the House financial services committee. The TAF, or Term Asset-Backed Facility, which buys from deposit-taking institutions, will end March 8. The TALF, for Term Asset-Backed Securities Loan Facility, will end March 31. A program that purchases securities backed by commercial loans will expire on June 30. "Use of many of the Federal Reserve's lending facilities has declined sharply as financial conditions have improved," Bernanke said. In other words, private buyers are emerging, so the government doesn't have to be the buyer of last resort.

The plan doesn't grab headlines in the way that Bernanke's pronouncements about interest rates do. But it is just as important and maybe more so. There is one big investor that is unhappy with the changes. It has a lot to lose because it holds so much U.S. debt.

The issue already has prompted the Chinese government to tell its agencies and banks to sell all but the most secure dollar-denominated assets. "The Chinese government has ordered its reserve managers to divest itself of riskier securities and hold only Treasuries and U.S. agency debt with an implicit or explicit government guarantee," Asia Times reported Tuesday.

The motivations of the Chinese government aren't completely clear. "With the expected termination of the Federal Reserve’s special facility to purchase mortgage-backed securities next month, some asset-backed spreads already have blown out, and the Chinese institutions may simply be trying to get out of the way of a widening," Asia Times said. It's also possible that Chinese authorities are responding to increased political pressure from U.S. government officials such as Secretary of State Hillary Clinton and to American arms sales to Taiwan.

As an investor, the Chinese government could exert far more influence over U.S. interest rates than Bernanke could. At the end of the day, the price and yield on U.S. debt is a function of the market, not government policy. If investor demand for U.S. securities falls, the price will decline and the yield will move higher. In fact, the market has already priced several rate increases into the Treasury market, anticipating future action by the Fed. In fact, U.S. interest rates were rising in the market on Wednesday as Bernanke talked in theory about changes in policy. The Treasury auctioned off a record-tying $25 billion in 10-year notes on Wednesday, but demand was weaker than expected and yields were higher than forecast in a Bloomberg survey.

China funds trillions of dollars of U.S. credit. If it starts to sell, prices will fall and all sorts of interest rates, from mortgages to credit cards and business loans, will rise.

The Obama administration might feel compelled to respond to China by slapping tariffs on its exports, sparking a broader economic conflict with the world's largest nation. If that happens, the White House could be pulled into a full-blown trade conflict with the world's largest nation, slapping tariffs on goods and services from China.

The collision course is a risk to the credibility of the Fed. If it appears weak or indecisive, its inflation-fighting credentials could be at stake. That would be enough in itself to push interest rates higher, as investors recalculate the odds of higher inflation.

So far, Bernanke is holding his ground, unlike Bank of England governor Mervyn King, who signaled that his bond purchases may continue. But there's no sign that China will back down either, and an economic conflict between the two nations could be the legacy of the bailouts.