Timothy Geithner’s first trip to China as US treasury secretary comes at a vulnerable time back at home.
Mired in a brutal recession, the United States needs Beijing to buy more American goods, allow its currency to rise and make other moves to narrow an enormous trade gap.
Yet Washington’s leverage has waned just as China’s power over the US has grown.
China is now America’s biggest creditor. As of March, it held $768 billion of Treasury securities — 10 percent of traded debt.
The US needs China’s money to finance soaring budget deficits as Washington tries to end the recession and bolster the banking system. The administration estimates the budget deficit will hit $1.84 trillion this year. That is four times last year’s deficit.
Geithner, who arrived in Beijing on Sunday for meetings today and on Tuesday with Chinese leaders, carried an ambitious US goal of persuading the Chinese government to adopt policies that would transform its nation of savers into spenders.
Geithner spent the long flight to Beijing working on a speech he planned to give at Peking University today — where he learned to speak Mandarin — that was expected to lay out progress in the administration’s recovery program. He was expected to talk about the determination to deal with the government’s soaring expenditures once the US economy is recovering.
The Obama administration is convinced the key to a prosperous global economy rests heavily with China. It wants Beijing to rely more on domestic spending and less on exports.
That shift would uncork enormous buying power and help rebalance world trade. It could hasten an end to the global recession and narrow America’s huge trade gap because the Chinese would buy more American products.
“Beijing really wants Washington to be successful in bringing the US economy out of this recession as fast as it can because it is critical to Beijing’s own economic growth,” said Kenneth Lieberthal, a China expert at the Brookings Institution.
For the Chinese, there is nervousness about the explosion of US borrowing. They fret over America’s budget gap. In March, Prime Minister Wen Jiabao said, “Of course, we are concerned about the safety of our assets.”
Geithner is expected to adopt a softer tone even though some US lawmakers want tough penalties on China and other countries deemed to manipulate currencies to gain trade advantages.
American manufacturers see the undervalued yuan as the major culprit in the trade deficit with the Chinese, which last year hit $266 billion, the highest recorded with one country.
China stopped its currency rising against the greenback as it fears a stronger yuan was reducing already falling export sales.