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Cut budget, halt inflation, US told
By Bao Daozu (China Daily)
Updated: 2009-07-29 07:11

WASHINGTON: China told the US it hopes the nation will cut its colossal fiscal budget in order to stifle inflation and protect China's dollar-denominated assets as the countries wrapped up the first day of the US-China Strategic and Economic Dialogue (SAED).

"We sincerely hope the US fiscal deficit will be reduced, year after year," Zhu Guangyao, assistant minister of finance, told reporters after the opening of the talks.

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

China, which is the largest foreign holder of US Treasury debt, has accumulated more than $800 billion-worth, according to US statistics.

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But as the US pulls out all the stops in its bid to bail out its economy, its budget deficit is projected to soar to a staggering $1.84 trillion this year, more than four times the previous record.

Investors fear the rapidly growing US deficit will drive down the value of the dollar, negatively impacting the assets held by China and other countries that have US Treasury bond holdings.

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

"We are committed to taking measures to maintaining greater saving and to reducing the federal deficit to a sustainable level by 2013," he said.

The US government has had plans to bring down its deficit gradually as the economy stabilizes, but investors remain concerned and many have started playing safe by courting shorter-term bonds.

US officials have not revealed how they will achieve their deficit-cutting goals during the ongoing dialogue.

"It will be very challenging for Geithner to realize his promise," said Sun Lijian, a professor at Fudan University. "We want to see more specific goals in addition to the promise."

Li Daokui, a professor at Tsinghua University, added: "It will be difficult for Geithner to deliver on his promise. Balancing finances depends on the overall economic situation. When the economy turns good, the budget deficit will shrink."

But Li Xiaogang, a researcher from the Shanghai Academy of Social Sciences, said Geithner can deliver.

"We have seen the savings rate going up, and if American people change their consuming style, of course Geithner will make it," he said.

The global economy, which both US and Chinese officials agree must be stabilized, may provide support to the US efforts to cut its deficit.

"We have agreed that green shoots have emerged in the international economy and financial markets," Zhu said.

However, the economic foundation is far from sound, and the current situation remains severe, Zhu warned.

China's economy has shown solid signs of recovery, with its GDP growth rising to 7.1 percent in the first half of the year after growing as low as 6.1 percent in the first quarter.

"We are confident that we will score a GDP growth of 8 percent this year," said Zhang Xiaoqiang at a post-talk briefing on Monday.

The two-day SAED session, which is co-chaired by Chinese Vice-Premier Wang Qishan, State Councilor Dai Bingguo, US Secretary of State Hillary Clinton and Secretary of Treasury Timothy Geithner, offers a forum for the countries to discuss issues including the global economy, climate change, clean energy and security.

At the opening ceremony on Monday, US President Barack Obama pinned hope on closer cooperation between China and the US .

"I believe that we are poised to make steady progress on some of the most important issues of our times," he said. "The relationship between the United States and China will shape the 21st century."

Dai Bingguo and Clinton called the first day of the SAED's strategic track "excellent" but they kept silent on exactly what had been discussed.

"We had a very good beginning," Dai told reporters after the closed-door talks.

Sino-US relations have improved greatly since the two countries established diplomatic ties 37 years ago, Dai said.

President Hu Jintao and former US President George W Bush initiated twice-yearly China-US dialogue meetings in 2006 as a framework for the two nations to discuss issues of mutual economic interest. Earlier this year, Hu and US President Barack Obama agreed to add the strategic track, which will alternate each year between being held in China and the US.

Shen Jingting contributed to the story