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UPDATED: June 7, 2009 NO. 23 JUNE 11, 2009
A Trip of Goodwill
Geithner calms fears about U.S. treasury bonds on his first visit to China since taking office
By CHEN WEN
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GREAT SURPRISE: U.S. Treasury Secretary Timothy Geithner is presented with a photograph by his former Chinese teacher Fu Min during his speech at Peking University on June 1. The photo, taken 28 years ago, shows Fu and Geithner when he was a student at an eight-week Chinese learning program at the university 

Two days before America's biggest and iconic carmaker General Motors announced its bankruptcy on June 1, U.S. Treasury Secretary Timothy Geithner left for meetings in Beijing-his first trip to China since taking office.

During his three-day visit, Geithner met and discussed with top Chinese economic policymakers "a range of issues of importance to both countries, including strengthening U.S.-China economic ties to promote stable, balanced and sustained economic growth in the two nations," the Treasury Department said in a statement.

Although it wasn't included in the public statement, analysts widely said that one of the main purposes of Geithner's trip was to assure China that its huge holdings in U.S. treasury bonds remain safe.

During his visit, "Geithner needed to assure the Chinese Government that its investment in the United States is safe," said Cheng Li, Director of Research and senior fellow at the John L. Thornton China Center of the Brookings Institution.

As of March, China held $768 billion in treasury securities, about 40 percent of the central bank's $1.95 trillion in foreign reserves and 10 percent of America's publicly held debt, making it the country's largest creditor.

For months, the Chinese Government has been under pressure from economists who worry that the value of those debt holdings will decrease if the U.S. dollar weakens and mounting deficits cause inflation.

Chinese Premier Wen Jiabao has stressed in public the country's concern about its investment in U.S. treasuries. "We have lent a huge amount of money to the United States. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried," the premier said in March.

But Geithner was reassuring during his visit to Beijing.

"Chinese assets are very safe," Geithner said without any hesitation in response to a question raised by a student in the audience after a speech at Peking University, where he studied Chinese as a student in the 1980s.

He also tried to back up his assurances by saying that the United States is determined to cut its deficit and protect the value of China's huge investment in U.S. treasuries.

Geithner has not made many foreign trips as Treasury chief, so the fact that he went to China shows that he is "serious" about cooperation with China on economic and financial issues and that "he understands China's importance," Li told Beijing Review.

The United States is experiencing its biggest financial crisis since World War II. Although the worst moment passed when the financial system completely froze last October, "there are many challenges ahead, principally in the real economy," Yasheng Huang, professor of political economy and international management at the Sloan School of Management, Massachusetts Institute of Technology, said in an interview with Beijing Review.

Huang said that for the United States to pull itself out of economic recession, it needs help from China. So the timing of Geithner's trip was probably designed to "make sure that both the United States and China coordinate with each other in order to get the economy back on track," Huang said.

To achieve that, what Geithner may want to do while visiting Beijing is to demonstrate how seriously the United States takes the Sino-U.S. economic and financial relationship, send signals that the Obama administration hopes to cooperate with China on a range of issues, and explain and address some of the concerns that China has raised about the scale of U.S. government borrowing, according to Brad Setser, Geoeconomics fellow at the Council on Foreign Relations.

"The trip is important for sending signals and building a relationship between Chinese policymakers and Secretary Geithner," Setser told Beijing Review.

So Geithner went to Beijing for goodwill. He played down the thorny currency issue, praised China's development and contributions to the world, emphasized areas of common agreement and stressed his personal connection with China. He used the same phrase in Chinese both at the end of his speech at Peking University and in an interview with China Central Television-"tong xin xie li," meaning "making a joint effort in a concerted way."

"He did a good job," Li said.

(Reporting from New York)



 
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