Tuesday, June 2, 2009

Geithner went out of his way to assure the Chinese that their large holdings of US dollar assets were secure

TO BE NOTED: From the FT:

Geithner says China backs US stimulus

By Kathrin Hille in Beijing

Published: June 2 2009 19:50 | Last updated: June 2 2009 19:50

China has expressed confidence in the US economy and the Obama administration’s policies on fighting the recession, the US Treasury secretary said on Tuesday.

Speaking on the second day of a closely watched visit to Beijing, Tim Geithner said there was “a very sophisticated understanding” in China about why the US needs to run large budget deficits in the short term, although he repeated the pledge to sharply reduce deficits when the crisis is over.

“I sense . . . a fair amount of confidence not just in the basic underlying strength of the US economy but in our capacity not just to solve this crisis, to get growth back on track, but to go back to living within our means,” Mr Geithner told reporters.

During the visit, his first to Beijing as Treasury secretary, Mr Geithner went out of his way to assure the Chinese that their large holdings of US dollar assets were secure and that the administration remained committed to a strong dollar and keeping inflation under control.

In recent months, Chinese leaders have issued a string of warnings about the risks that the US will inflate away its mounting debt burden.

Although Chinese officials did not bring up the issue again in public during the visit, there were plenty of other signs of concern, including the tough questioning Mr Geithner received from students after giving a speech at Peking University.

Mr Geithner said that his confidence in the US dollar was shared by Beijing. “I believe the Chinese expect the dollar to be the principal reserve currency for a long period of time, as do we,” he said.

As Mr Geithner wrapped up his visit, Beijing and Washington announced plans to start their “strategic and economic dialogue” – the Obama administration’s renamed version of bilateral consultations – in Washington in late July.

The discussions next month would give both sides the opportunity to explore each others’ policies in more detail.

“We’re going to have lots of time to talk to them about the specific content of their reform agenda, just like they’re going to want to talk to us about ours,” he said.

Mr Geithner said the two countries had already demonstrated they could co-operate in laying a foundation for economic recovery. “I think probably because of the actions put in place by your government and by President Obama, we are starting to see some early signs of stabilisation and recovery in the global economy,” he said in a meeting with Hu Jintao, China’s president.

Mr Hu said the visit by Mr Geithner, who irritated Beijing when he said during his confirmation hearing that China “manipulated” its currency, had helped improve co-operation between the two countries.

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