US Treasury Secretary Timothy Geithner’s first trip to China in his official capacity comes at a vulnerable time for the administration of US President Barack Obama.
Mired in a brutal recession, the US needs Beijing to buy more US goods, allow its currency rise and make other moves to narrow an enormous trade gap. The US also needs China’s help to confront any military threat from North Korea.
Yet Washington’s leverage has waned just as China’s power over the US has grown.
China is now the US’ biggest creditor. As of March, it held US$768 billion of Treasury securities — about 10 percent of publicly traded debt.
The US needs China’s money to finance US budget deficits, which are soaring as Washington tries to end the recession and bolster the banking system. The administration estimates the budget deficit will hit US$1.84 trillion this year. That’s four times last year’s deficit.
Geithner, who left on Saturday for meetings today and tomorrow with Chinese leaders, carried an ambitious US goal of persuading the Chinese government to adopt policies that would transform its nation of savers into spenders.
Geithner spent the long flight to Beijing working on a speech he planned to give at Peking University that was expected to lay out the administration’s recovery program and its current progress. He was also expected to talk about the administration’s determination to deal with the government’s soaring expenditures once the US economy is recovering.
The current US administration, just like the administrations of former US presidents Bill Clinton and George W. Bush, is convinced that the key to a prosperous global economy rests heavily with China. The US wants Beijing to rely more on domestic spending and less on its exports to power its own economy — and the world’s.
That shift would uncork enormous buying power and help rebalance world trade. It could hasten an end to the global recession and narrow the US’ huge trade gap because the Chinese would buy more US products.
China would benefit, too.
“Beijing really wants Washington to be successful in bringing the US economy out of this recession as fast as it can because it is critical to Beijing’s own economic growth,” said Kenneth Lieberthal, a China expert at the Brookings Institution.
For the Chinese, there is growing nervousness about the explosion of US borrowing. Like any bank worried about its loans, the Chinese have fretted over the US’ budget gap.
In March, Chinese Premier Wen Jiabao (溫家寶) said: “We’ve lent a huge amount of money to the US. Of course, we are concerned about the safety of our assets.”
Those comments, plus remarks by the head of China’s central bank about whether the world needs a new top reserve currency to replace the US dollar, jolted financial markets.
The administration insists it isn’t worried that the mound of debt it’s creating will jeopardize the US’ sterling AAA bond rating. But treasury officials said Geithner still intends to reassure the Chinese.
Geithner plans to stress that the administration sees the US$1 trillion-plus deficits for this and next year as temporary. The deficits are necessary to fund a stimulus plan to help lift the US out of recession and invigorate a wobbly US banking system, officials say. Once those needs are met, the administration says it will prioritize deficit reduction.
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