Treasury Secretary Geithner Set to Embark on Trip to China

May 28, 2009— -- When Treasury Secretary Tim Geithner lands in China this weekend, it will not be just another trip abroad for him. China, the largest foreign holder of Treasury securities, has voiced increased concerns about its huge investment as the United States racks up a rising deficit to combat the current recession.

He is effectively meeting with the country's banker.

On his first trip to China since taking office, Geithner will sit down on Monday with Chinese Vice Premier Wang Quishan and on Tuesday with Chinese President Hu Jintao and Premier Wen Jiabao.

This spring the Chinese premier acknowledged that officials are "worried" about holding a record-high $768 billion of Treasury securities. China's continued purchases of U.S. government debt have helped the Obama administration pay for its economic rescue programs, but should Beijing's stance change due to their concerns about the growing U.S. deficit, the effects could be devastating.

However, a senior Treasury official said today that there are no indications that this might happen, noting the safe appeal of investing in the American government.

"Treasury believes that by maintaining the deepest, most liquid debt markets in the world and by maintaining strong economic fundamentals, that we will continue to attract both domestic and international investment," the official said.

"China has continued to be a very strong buyer of U.S. dollar assets," added the official. "Beyond that, the portfolio choices of individual investors are their own choices -- they're not choices that we comment on. We believe, and others believe, that U.S. markets are the most stable, attractive, and liquid in the world."

The Treasury official noted that concerns about the country's deficit should wane as Washington scales back the economic rescue efforts once the recession has ended.

"We're already seeing signs now that the recession is slowing and some signs of stability and improvement in the financial system. Our deficit is going to increase sharply as a result of these measures. Once recovery is firmly established and the risks have dissipated, we're going to walk back these measures and the deficit will decrease as these temporary measures are unwound," the official said.