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China hopes US will cut budget deficit
By Bao Daozu (chinadaily.com.cn)
Updated: 2009-07-28 10:32

WASHINGTON: China expressed its hope that the US government will be able to cut its budget deficit in order to prevent inflation that could jeopardize the value of China's dollar-denominated assets, as the two countries wrapped up the first of two days of high-level talks here.

"We sincerely hope the US fiscal deficit would be reduced, year after year," Zhu Guangyao, assistant minister of finance, told reporters after the conclusion of the first day of talks, which have been dubbed the US-China Strategic and Economic Dialogue.

"The Chinese government is responsible and first and foremost our responsibility is [for] the Chinese people, so of course we are concerned about the security of the Chinese [dollar] assets," Zhu said.

China hopes US will cut budget deficit
China's State Councillor Dai Bingguo (L), China's Vice Premier Wang Qishan (2nd L), US Secretary of State Hillary Clinton (2nd R) and US Treasury Secretary Timothy Geithner (R) stand with participants in the first joint meeting of the US-China Strategic and Economic Dialogue for a family photo in Washington July 27, 2009. [Xinhua]  More photos

China holds a total of more than $800 billion in US treasury debt, making it America's largest foreign creditor.

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As a result of recent American efforts to counter the financial crisis and stimulate the economy, US government spending has soared, and is projected to reach $1.84 trillion this year. That is more than four times the previous high.

Many investors and economists fear this deficit spending will lead to inflation, as the increase in the supply of dollars drives down their value, thereby also reducing the value all dollar-denominated assets, including US Treasury bonds. As a result, some investors have started to buy shorter-term bonds, which they hope will not be impacted by any longer-term inflation driven by increased government spending.

US Secretary of Treasury Timothy Geithner assured the Chinese delegation in his opening remark on Monday that US has taken steps to overhaul its financial system, enhance regulation, and control the deficit.

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