Treasury Secretary Timothy Geithner sought to assure America’s biggest creditors on Monday that the Obama administration is committed to attacking soaring budget deficits.
Facing skeptical students at China’s prestigious Peking University, Geithner said that once the current recession and financial crisis are over, the administration will get America’s fiscal deficit in order.
"As we recover from this unprecedented crisis, we will cut our fiscal deficit, we will eliminate the extraordinary government support that we have put in place to overcome the crisis," Geithner said in a speech to students at the university, which Geithner attended nearly three decades ago.
The speech was the first stop on a two-day trip to China — Geithner’s first as Treasury secretary — and the students let the Obama administration’s chief economic spokesman know through a series of tough questions that they wanted an accounting of the money that China has invested in Treasury notes and bonds.
China is the largest holder of Treasury securities, the result of the billions of dollars that have flown into the hands of Chinese companies because of more than a decade of record trade surpluses with the United States.
Responding to one question, Geithner said, "Chinese financial assets are safe. We have the deepest, most liquid financial markets in the world."
Later in the day, Geithner and other Treasury officials met at the Great Hall of the People with a team of economic officials from China led by Vice Premier Wang Qishan for discussions about the upcoming high-level talks scheduled for this summer between the two nations in Washington.
At the start of the session, Geithner said, "The world has a huge stake in our two countries working closely together to lay a foundation for recovery."
Treasury announced that Geithner was appointing David Loevinger to be the department’s coordinator for the high-level talks and naming David Dollar to be Treasury’s representative in China.
In his economic speech, Geithner said that a successful transition to a more balanced and stable global economy will require substantial changes to economic policy and financial regulation around the world and especially in the world’s largest and third largest economies.
"How successful we are in Washington and Beijing will be critically important to the economic fortunes of the rest of the world," Geithner said in his university speech.
Geithner had extensive praise for the economic transformation China has achieved and avoided emphasizing past trade disputes, such as the aggressive campaign waged by the Bush administration to force China to move faster to allow its currency, the yuan, to rise in value against the dollar.
American manufacturers see the undervalued yuan as a primary culprit in the soaring trade deficits the United States has with China.
Geithner struck a positive note on the global economy, noting a number of signs in the United States that the huge plunge in activity that occurred last year when the financial crisis struck with force had started to slow.
"These are important signs of stability and assurance that we will succeed in averting financial collapse and global deflation, but they represent only the first steps in laying the foundation for recovery," Geithner said.
Geithner said that while the United States needed to get its budget deficits under control, China will need to strengthen its social safety net in such areas as pensions and health care so that the Chinese will feel more confident about spending more. That is viewed as critical if China is going to transform from an export-driven economy into one driven more by domestic consumption, a change Geithner said was essential to assuring balanced world growth in the years ahead.
Geithner sought to reassure the Chinese on the issue of getting control of the exploding U.S. budget deficit, which is projected to hit a record $1.84 trillion this year, a fourfold increase from last year’s record, reflecting the massive spending to stimulate the economy and stabilize the banking system. China is America’s biggest creditor, holding $768 billion in Treasury securities.
Asked about the support being provided to General Motors and Chrysler, Geithner said he was "very optimistic" that the government’s efforts would help the companies emerge in a stronger position and he said the administration planned for the assistance to be temporary.
While not a main focus of Geithner’s trip, the U.S. also hopes China will play a positive role in resolving a tense dispute with North Korea over its nuclear weapons program.
China, with 1.3 billion people, ranks as the third largest economy after the U.S. and Japan. Geithner said China’s new status should be recognized with a bigger voice in such institutions as the International Monetary Fund.