Treasury: Geither will discuss deficits with China

May 28, 2009 12:00:00 AM PDT
Treasury Secretary Timothy Geithner will discuss the Obama administration's efforts to deal with record U.S. budget deficits in talks next week with top Chinese officials, a senior Treasury official said Thursday. The official said that Geithner would stress to the Chinese that the administration was committed to bringing down the deficits once the country has emerged from the current recession and financial crisis. Officials in China, the largest foreign holder of U.S. Treasury securities, have expressed worries about the exploding U.S. deficits.

Geithner will also stress the need for countries like China to do more to boost consumer spending in their countries to achieve a better balance of global growth, the official said. The United States is pushing China to increase purchases of U.S. exports to deal with a huge trade gap between the two countries.

The Treasury official briefed reporters on talks Geithner will hold next Monday and Tuesday in Beijing under ground rules that prohibited use of his name in advance of the meeting. Geithner will meet with Chinese President Hu Jintao and Premier Wen Jiabao along with other top Chinese officials in what will be Geithner's first trip to China since becoming Treasury secretary.

The administration has said that the meetings would focus on efforts to strengthen economic ties between the two nations and deal with the current global economic recession.

Relations between the United States and China have been strained over the past decade by America's soaring trade deficit with China. U.S. manufacturers blame that imbalance on unfair Chinese trade practices including what they see as improper manipulation of the Chinese currency to keep it significantly undervalued against the dollar. A weaker yuan makes Chinese products cheaper in the United States and American goods more expensive in China.

The senior official who briefed reporters Thursday said that Geithner's meetings would allow both countries to take stock of the progress that has been made in combatting a severe global downturn as well as assessing how to deal with the risks that remain.

The official said that Geithner would review efforts needed to build a foundation for more sustainable growth going forward, including plans the administration has to reduce the federal budget deficit, which is projected to hit an all-time high of $1.84 trillion this year.

He said that as the administration works to reduce the deficit and bolster savings rates in this country it was important for other nations such as China to work to boost their own domestic growth to fill the gap. The administration sees this as a "critical component" for sustained global growth, the official said.

In this area, the official said that the United States would continue to push for the Chinese to pursue a flexible exchange rate. U.S. manufacturers contend that the Chinese yuan is still significantly undervalued and that China has stopped allowing any further appreciation in the yuan's value because of Beijing's worries that a stronger yuan would cut into the country's exports at a time of weak global demand.

After being critical about China's currency manipulation during the campaign, the Obama administration has softened its comments since taking office. In a report on the subject in April, the Obama Treasury took the same stance as Bush administration, that China was not manipulating its currency to increase exports.

That action was seen as an effort to ease tensions on the currency subject at a time when the administration needs China's support to battle the global recession and to keep buying U.S. Treasury bonds as the federal budget deficit surges.

In March, Chinese Premier Wen Jiabao said that China was concerned about the "safety" of the large amounts of money it had lent to the United States and Zhou Xiaochuan, the head of China's central bank, suggested that monetary officials should explore the possibility of an alternative to using the dollar as the world's leading reserve currency.

The senior official said the administration expects that the dollar's status as the leading reserve currency will remain in place for some time but he said the issue could come up in Geithner's talks next week.

Geithner's visit will come at a time of increased tensions in the area with the United States and South Korea putting their military forces on high alert following a second nuclear bomb test by North Korea.

Geithner is also scheduled to give a speech at Peking University on Monday and planned to meet with some of his former professors. Geithner studied Chinese at the university during his days as a college student more than two decades ago.

(Copyright 2009 by The Associated Press. All Rights Reserved.)

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