BEIJING - As the federal budget deficit soars into the stratosphere, US Treasury Secretary Timothy Geithner is reassuring the Chinese that the Obama administration is serious about restoring fiscal discipline once the current economic crisis is resolved.
US Treasury Secretary Timothy Geithner delivers a speech at the National School of Development in Peking University in Beijing June 1, 2009. [Agencies]
Geithner, making his first trip to China as treasury secretary with an itinerary that included meetings later Tuesday with President Hu Jintao and Premier Wen Jiabao, used a major economic policy address Monday as well as separate meetings with top Chinese officials to deliver that message.
"As we recover from this unprecedented crisis, we will cut our fiscal deficit, we will eliminate the extraordinary government support that we have put in place to overcome the crisis," Geithner said in a speech to students at Peking University, which Geithner attended as a young college student learning Chinese nearly three decades ago.
Geithner repeated that message in a round of interviews Tuesday with Chinese media as he wrapped up his two days of talks.
"We are very committed to make sure that when recovery is established, that we go back to living within our means, that we bring our fiscal deficits down to a sustainable level, that we unwind and reverse these exceptional measures that we've taken in the financial sector," Geithner told Chinese television.
Geithner said he had found support among Chinese leaders for the actions the US was taking.
"I've actually found a lot of confidence here in China, justifiable confidence, in the strength and resilience and dynamism of the American economy and I think a very sophisticated understanding ... of the steps we're taking and why they're so important not just to the United States but to China and the rest of the world," he said.
In an interview with China Daily, Geithner had praise for the actions taken by the Federal Reserve. Geithner said Fed Chairman Ben Bernanke had done an "enormously impressive job in the worst financial crisis in decades."
Chinese officials did not comment on Geithner's reassurances, but judging from the reaction of the college students, Geithner may still have some explaining to do.
The students peppered the US Treasury secretary with questions about the debt, the administration's massive amounts of support to the banks and US auto companies and the recent rise in interest rates on US Treasury securities.
Some students wanted to know whether China's holdings of $768 billion of Treasury securities - which makes China America's biggest creditor - were safe, given projections by the Obama administration that the deficit for this year will soar to an astronomical $1.84 trillion, four times the previous single-year record.
Some students wondered whether the recent rise in interest rates was a signal that investors are beginning to worry that US budget deficits will threaten inflation, weaken the dollar and reduce the value of the Chinese holdings.
China's investments in the United States "are very safe," Geithner told the students. "We have the deepest, most liquid financial markets in the world."
He said the recent rise in long-term rates for Treasury securities was not a reflection of worries about rising US budget deficits but a reflection of the view by investors that the global economy is improving, which lessens demand for US Treasuries as a safe haven.