Treasury Secretary Geithner Faces Tough Talks in China

Posted by: Dexter Roberts on May 29, 2009

Beneath the usual diplomatic niceties, there is likely to be some real friction as U.S. Treasury Secretary Timothy Geithner meets top Chinese officials in Beijing early next week. Premier Wen Jiabao and vice premier Wang Qishan are worried that Washington’s profligate spending policies will lead to inflation and dilute the value of China’s more than $1 trillion in U.S. assets—a concern they will certainly bring up. Beijing too is increasingly pushing for a larger international role for its currency the renminbi, which would by necessity weaken the leading global role the U.S. dollar now plays. In March central bank governor Zhou Xiaochuan called for a new “super-sovereign reserve currency” to replace the dollar. That was followed by a series of currency swap agreements signed between China and some of its trading partners including Malaysia, South Korea and Argentina.

The Obama administration of course, sees its massive fiscal spending as necessary to keep the U.S. economy on track, even as American consumers cut back on their spending. In a press briefing in Washington on the eve of the visit, a Treasury official said Geithner would press the Chinese to allow their currency to be more freely tradable. The hope is that a strengthened renminbi would help narrow the massive trade deficit between the two countries. Equally important of course, is that Chinese begin to break their frugal habits, start spending more, and so pick up some of the slack left by the collapse in U.S. spending. Geithner too will encourage Beijing to find ways to boost consumption at home, the Treasury official said. (A stronger renminbi would make U.S.-produced goods more attractive in China, of course.)

Unfortunately, Beijing knows all to well that seriously strengthening consumption as an economic driver is a long term project. And for now, helping the hard-hit export sector—which employs tens of millions of migrant workers—remains a top priority, no matter what Washington thinks. On Wednesday, China’s State Council announced new policies supporting export manufacturers including short term export credit insurance totaling $84 billion, as well as new tax rebates for both labor-intensive and high technology industries. The goal is to help them “protect world market share,” said a report on Xinhuanet.com. At the meeting that was presided over by premier Wen Jiabao, China too announced its intention to keep the value of the renminbi “basically stable” and at a “reasonable and balanced level” to help support Chinese exporters. That’s hardly what Geithner could have been hoping to hear, just before he arrives for his first visit to China as Treasury secretary.

Reader Comments

David

May 29, 2009 4:53 PM

US Goods?? Right! and pigs fly once again

Concerned Citizen

May 29, 2009 5:14 PM

An Open Letter to American Government and Business:

Okay, that’s it; why does the United States continue to deal with China?

Our nation has been subtly at war with China. Communist China has already breached the borders of Capitalist America, in many ways. And their insidious “attacks” have been deadly. America needn’t even engage in a military war with China, China has already successfully attacked American families in their very homes. China has assaulted us through the avenues of our own consumerism:

- China has killed our pets, with inferior tainted petfood.
- China has killed our elderly and sick, with inferior tainted drugs.
- China has sickened our children, with inferior lead and toxin laden toys.
- China has destroyed our newly-constructed home values, with inferior tainted drywall.
- China has destroyed our job base, through outsourced manufacturing jobs.
- China mocks fair trade, by perennially running trade imbalances with the U.S.
- China damages our digital data, through state sponsored cyber attacks and censorsoring our companies.
- China has stolen our personal identities, through online identity theft.
- China steals our stories, by wantonly ignoring copyright laws.
- China continues to flagrantly harm the global environment; by poor pollution controls, by on-lining coal-burning power plants one-a-week and by dumping cheap plastic goods the world over.
- China ruins economies the world over, by keeping their own currency’s value artificially low.
- China despises the American Dollar, China wants to no longer base the International Monetary Fund currency on the U.S. Dollar.
- ...and ultimately China could very easily behead our economy, when they call in the U.S. debts which they hold.

Capitalist America has undermined itself in the short-run by “selling out” to Communist China, at the long-term expense of having a robust American economy. China is no friend the the United States. Ultimately, if America wants to reverse it’s decline during this 21st century, American government and business leaders must help our nation by limiting and eliminating many imbalanced policies and dealings with China. No excuses, no gray areas. Period.

- A Concerned American

Pink Slips 4 All

May 29, 2009 7:10 PM

Devaluing the dollar and overindebting the country is really the way to prosperity.

Gerald Spencer

May 30, 2009 12:56 PM

It is not the foreign manufacturer's fault that this economic condition exists: US citizens created this condition. US citizens purposefully destroyed most of our industries and fired all of the employees that were located in the US for various economic and environmental reasons. Our recent leaders decided that we could get people in other countries to work and make these things for our consumption if we paid them with freshly printed-paper T-bills, US Bonds, and other types of freshly printed-paper securities that they could redeem for title to any of our assets. Our Stupid Legislators of both political parties, Importing Companies, Ignorant Government Employees, Self Serving Corporate Managers, Wall Street Financial Genius Master Criminals, Enron and Arthur Anderson type Management, NAFTA, EPA, WTO, OSHA, and the buying public just to name a few, have created this situation.

Re-Industrialize Now? How can we ever possibility restart our industries (re-industrialize) to generate a positive balance of trade that will restore our economy? Most of the people who knew how to operate the US basic industries and factories were fired decades ago and are probably now long dead and buried. There are no books that completely tell everything about how to do most of the things that we knew how to do years ago when we created the industries that won WWII and then gave us this bountiful way of life.

The US Federal Reserve market bid almost 4% interest on $100bn of freshly printed paper US Treasury securities issued in May 2009 public auctions. The US government will need to "borrow" $6 trillion more from the industrial manufacturing countries before the end of this year by conducting more US Federal Reserve auctions, and who knows how high the interest rates will be bid at these auctions. China, and Japan together hold a large portion of all US federal debt securities, and they are exchanging these instruments for title to US real estate, farms, agri-businesses, food supplies, dairies, forests, industries, breweries, hotels, factories, casinos, financial institutions, retail businesses, and most other assets located in the USA, since the US government does not redeem these dollars for gold.

We are selling our "body Parts" to keep from working.

David

May 31, 2009 10:40 AM

Stop blaming China for US failures, get over it!!!

Henry L.

May 31, 2009 3:13 PM

What makes a country great is thru hard work and not the sense of birth right. What makes the US great is hard work from previous generations. I hear many complain that US is somehow victimized thru unfair playing field. First, the world is never build on a level playing field and this playing field is dictated by the most powerful country and in recently history that means it's the US. The fact that Japan and now China can succeed tells you something. It's time to roll up our sleeves and survive in this unfair world. It's never fair when the shoe is on the other side is it?

Walter Kurtz

May 31, 2009 5:00 PM

With China now holding $1.55 trillion of US Treasury securities, Geithner must play nice. So far it's working. According to the fed's custody of foreign accounts, the non-US holdings of Treasuries continue to increase.

The US debt/GDP looks horrible relative to last year and the deficit is exploding (see table below). But part of the issue is the lack of alternatives. If you need some place to park your money, your alternatives are Japan, the UK, maybe Germany and France? The rest are just too small for somebody like China. Japan looks far riskier than the US. The UK is getting there as well. Maybe Bundesanleihen? Possibly. But the Chinese may want to hold a substantial amount of Treasuries in order to apply political pressure on the US. Sure got Mr. Geithner attention.

Walter Kurtz
http://narrowtranche.blogspot.com/

jim

May 31, 2009 11:43 PM

dear concerned citizen: there is no one to blame but ourselves. http://chronicle.augusta.com/stories/2009/05/31/edi_525818.shtml

C. H. Ng

June 2, 2009 2:09 AM

Glad to see out of several comments posted here, all of them came from sensible sources except for one who must be still sticking his / her small head in the sand like an ostrich.
Wake up Mr (or Ms) Concerned Citizen (or whoever you are), the world has changed. The days of US total domination may be not over yet but it will come sooner than you expected IF there are many Americans out there who are on the same wavelength like you.

What USA and many other Western countries are suffering are their own undoings. Stop blaming others, especially China, for the woes which are your own making. Even if she, China, is to be blamed for some of the woes, remember it takes two hands to clap. Both China and USA are willing buyer and seller of US treasury bills and also seller and buyer of Chinese goods. If you want to blame, blame your government and the corporate heads who due to their smart business senses (if talking in a nice way) or greed (if not in a so nice way), closed down the factories in your country (thus putting lots of your people out of work) and outsource all the materials from China which ultimately creating a growing force/power there.
In another way you yourself are to be blamed too, for wanting to buy things at dirt cheap price. Remember the saying..."Good things (are) not cheap, cheap things (are) not good".

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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