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.

Currency Question to Face Geithner in China

But for the current budget year, the Obama administration projects the deficit will reach a record $1.8 trillion.

"If the deficit issue comes up, we're certainly prepared to listen," said the official.

Last week Geithner testified before a House of Representatives panel that he will continue to work towards maintaining a strong dollar.

"As the Secretary of the Treasury, I want you to know that my basic obligation is to make sure that we put in place policies that sustain confidence in this economy, in our currency, that we sustain a strong dollar, we retain what is a great strength and asset for this country -- which is the most deep and liquid markets for Treasury securities in the world," Geithner stated.

While in China, another likely topic for discussion awaiting Geithner is the controversial and contentious issue of currency manipulation.

During his confirmation hearings in January, the Treasury chief told lawmakers that China was manipulating its currency, but in a semi-annual report to Congress on April 15, he declined to cite China as a currency manipulator, saying only that the "renminbi is undervalued."

Instead, Geithner applauded Chinese efforts to "enhance exchange rate flexibility" and noted that China enacted the second-largest stimulus package of all G-20 countries, behind only that of the United States.

In addition to the meetings with Chinese leaders, the Treasury boss will also give a speech on U.S.-China relations at Peking University on Monday and take part in an event on Tuesday at the Beijing Capitol Museum dealing with China's economic development efforts to reduce climate change.

Geithner is a student of China, dating back to his days at Dartmouth College and the Johns Hopkins School of Advanced International Studies. His upcoming visit will act as a homecoming of sorts. While at Peking University on Monday, he may meet with former professors, the Treasury official said. Later that day, Geithner will visit the Ford Foundation, whose Beijing office was founded by his father, Peter.

Goals of Geithner's Trip Abroad

The Treasury official outlined four goals for Geithner's visit: Take stock of U.S. and Chinese efforts to end the global recession; lay the foundation for sustainable growth after recovery is in place; continue cooperation in strengthening the international financial architecture; and deepen cooperation in maintaining open trade and avoiding protectionist policies, as well as working on issues involving clean energy and the environment.

One key issue, the official noted, involved improving trade relations, including the need for China to encourage its consumers to reduce their cash savings.

The trip is the result of an invitation extended by Wang Quishan during the G-20 summit in London. Following his two-day visit to China, Geithner will return to Washington on June 3. More bilateral talks will take place in Washington in the latter half of this summer.