When it comes to dealing with China, Timothy Geithner is one of the most culturally clued-in Treasury Secretaries in U.S. history. He studied at Chinese universities and speaks some Mandarin, and his ease with Chinese officialdom was evident during a three-day visit to Beijing that ended on May 25. Yet in pushing President Barack Obama's agenda, ranging from currency issues to gaining support for fresh sanctions on Iran, Geithner's China connection might not make any difference.
Geithner knows better than most that it pays to be patient when dealing with the mainland. When China's first Communist premier, Zhou Enlai, was asked to assess the importance of the French Revolution, he famously (perhaps apocryphally) quipped: "It's too early to say." Just a few weeks ago the U.S. goal of persuading China to revalue the yuan, allowing it to strengthen against the dollar, seemed within reach. Instead, the summit was dominated by more urgent discussions of Europe's debt crisis and tensions with North Korea.
Even so, Geithner said in an interview with Bloomberg Television that he is "as confident as I've ever been" that an agreement is possible. Kenneth Rogoff, a professor of economics at Harvard University and a former chief economist of the International Monetary Fund, says that optimism is justified. Before the European debt crisis reached critical mass, the Chinese "were on the fence" and "probably we could have talked them into" an agreement, says Rogoff. The deal was "derailed because the Chinese rightly were concerned that the markets are unstable."
Whether Geithner can close a deal on the Chinese currency, which for nearly two years has been pegged at a rate of 6.83 yuan to the dollar, remains to be seen. If he fails, it won't be for lack of inside knowledge about the Chinese. Although Geithner spent his childhood in Zimbabwe, India, and Thailand, China has special appeal for him. He holds bachelor's and master's degrees in East Asian studies. While an undergraduate at Dartmouth College, he spent two 10-week stints studying Mandarin at Peking University and Beijing Normal University, where he was given a Chinese name, Gao Yiran, an echo of his American name that also carries the meaning elegant or graceful.
As he did when he made his first official visit to China in 2009, Geithner, 48, used this trip to showcase a more relaxed side of himself that he seldom, if ever, displays at home—that of a Chinese-proverb-quoting, basketball-playing former exchange student. He shed his dress shoes for a pair of Nike sneakers to play basketball with students at Renmin University High School in Beijing, and he was equally comfortable in some of his official dealings with Chinese leaders.
In his opening remarks, Geithner made the case that Europe's woes would have only a small effect on a global recovery led by the U.S., China, and emerging-market nations such as Brazil and India. Vice-Premier Wang Qishan, Geithner's counterpart and a longtime friend of the Treasury Secretary's father, countered that the debt crisis has triggered a chain reaction that put the global recovery at grave risk. The back-and-forth was a thinly veiled debate over whether it's safe for China to roll back crisis-fighting economic stimulus measures that include the yuan peg, along with a little friendly jostling.
"They seemed to have a very good relationship," one member of the 200-strong U.S. delegation, Federal Deposit Insurance Corp. Chairman Sheila Bair, said in an interview in Beijing. "Maybe a little competitive, but in a healthy, positive way."
Criticism Back Home
Geithner's warm reception contrasts with the criticism he faces on a daily basis back home. In Washington, he is routinely called out for his support for the U.S. bank bailout and pragmatic approach to financial regulation. Geithner also has taken heat for postponing a mandatory report on foreign-exchange markets that some lawmakers say should brand China an illegal currency manipulator. Heading into June's Group of 20 meetings, Geithner can expect more pressure from Senator Charles Schumer (D-N.Y.) and others who call for a more confrontational approach to China. They argue the mainland should be threatened with sanctions unless it lets the yuan rise against the dollar.
"I see no signs that Geithner has had the slightest effectiveness with the Chinese," says Alan Tonelson, a research fellow at the U.S. Business & Industry Council. "The big test of the Administration's policy will be whether Congress is impressed with this dismal record."
Tonelson clearly isn't a fan. Geithner, however, appears to have plenty of them on the mainland, judging by his warm reception in China. Particularly flattering were the comments of Chinese television talk show host Chen Luyu, a Chinese version of Oprah Winfrey, who referred to the Treasury Secretary as one of the Obama Administration's best-looking officials.
Safe to say, Geithner's looks probably matter less with the Communist Party bosses who protect the country's strategic interests. Respect for Chinese traditions can go a long way, though. At the high-level talks, Geithner quoted a Chinese proverb, feng yu tong zhou. It means to stand together regardless of the situation and, in this context, signaled that Geithner was willing to let his Chinese friends take the long view—at least for a couple more months.
The bottom line Beijing leaders won't budge on the yuan unless they deem it in their self-interest, though Geithner's China savvy definitely doesn't hurt.