Geithner Tells China Its Dollar Assets Are Safe - washingtonpost.com

Geithner Tells China Its Dollar Assets Are Safe - washingtonpost.com

BEIJING, June 1 -- U.S. Treasury Secretary Timothy F. Geithner arrived in China this week seeking to reassure America's biggest creditor that its hundreds of billions of dollars of holdings in U.S. government debt remain safe.

Responding to remarks by Chinese officials in recent months about their nervousness over the value of U.S. Treasury securities, Geithner said he remains committed to a strong dollar and pledged that the United States would cut its fiscal deficit and eliminate "the extraordinary government support" that had been put in place to overcome the crisis.

"The United States is committed to a strong and stable international financial system. The Obama administration fully recognizes that the United States has a special responsibility to play in this regard, and we fully appreciate that exercising this special responsibility begins at home," Geithner said in a speech at Peking University on Monday.

China is by far the largest purchaser of U.S. Treasuries and is estimated to hold about 82 percent of its $2 trillion of foreign reserves in dollars. In March, Chinese Prime Minister Wen Jiabao said he was "concerned about the safety of our assets," and since then other high-level Chinese officials have been pushing for alternatives to the dollar as a reserve currency.

In meetings with Chinese government officials and in his public remarks, Geithner was careful to characterize China as a partner rather than as a country that needs to be lectured. He called for a greater role for China in international financial institutions and for China to continue to collaborate with the United States to lead the world out of recession.

"The world is going through an exceptionally challenging period now, and I think the world has a huge stake in our two countries working closely together to lay a foundation for recovery," Geithner said in introductory remarks during a meeting with Vice Premier Wang Qishan.

Geithner's choice of language during this two-day trip highlights just how much things have changed since Henry M. Paulson Jr.'s first trip to China as Treasury secretary in 2006.

Back then, the main issue dominating U.S.-Chinese economic relations was Beijing's strict control over the exchange rate for its currency, the yuan. Members of Congress and industry lobbying groups accused China of keeping the exchange rate artificially low, giving its own industries a boost at the expense of U.S. companies and jobs. Paulson had been lobbying the Chinese to allow the yuan to rise against the dollar, and until last fall it had been.

In his own confirmation hearings earlier this year, Geithner accused China of manipulating its currency, a statement so strong that it prompted a phone call from President Obama to his Chinese counterpart Hu Jintao.

On Monday, however, the yuan exchange issue was just a footnote. In his university speech, Geithner did not addresses the issue directly but noted that "greater exchange rate flexibility will help reinforce the shift in the composition of growth."

Instead, Geithner's remarks throughout the day focused mostly on four topics. The first was an explanation of the steps the U.S. government is taking to stabilize its economy and some initial signs of economic recovery.

"In the United States, the pace of decline in economic activity has slowed. . . . The financial system is starting to heal," he said, pointing out that households are saving more as consumer confidence is improving, housing prices are falling at a slower pace, and the pace of deterioration in the labor market has slowed.

The three other main subjects he covered -- his background living and studying in China, praise for China's leaders and reforms, and areas for cooperation between China and the United States -- conveyed the general message that Geithner is friendly toward China and admires its recent achievements.

"China, despite your own manifest challenges as a developing country, you are in an enviably strong position," he said in the morning. In the evening, at a reception hosted by the Ford Foundation, he said he wanted to "provide a tribute to the work of this generation of economists in China."

"What you've accomplished in China is just remarkable," he said. "I don't think there's any precedent for the scale of transformation in economic structure and growth that China has achieved. . . . I've watched this from a distance but with great admiration and respect for a long period of time."

In conclusion, Geithner told the small group of government officials and influential academics that the time he spent in China as a student "had an enormous impact on my own view of world, the U.S. role in the world, not just my understanding of China, and enormous impact in my own choices in life in deciding what I wanted to do."