* Dollar assets are safe, Geithner assures China
* Recession losing force; U.S., China must alter growth tack
* Backs strong dollar, calls for more flexible yuan
* China says cooperation can boost global confidence
(Adds Chinese Vice-Premier Wang's comments)
By Glenn Somerville
BEIJING, June 1 U.S. Treasury Secretary Timothy
Geithner on Monday reassured the Chinese government that its
huge holdings of dollar assets are safe and reaffirmed his faith
in a strong U.S. currency.
A major goal of Geithner's maiden visit to China as Treasury
chief is to allay concerns that Washington's bulging budget
deficit and ultra-loose monetary policy will fan inflation,
undermining both the dollar and U.S. bonds.
China is the biggest foreign owner of U.S. Treasury bonds.
U.S. data shows that it held $768 billion in Treasuries as of
March, but some analysts believe China's total U.S.
dollar-denominated investments could be twice as high.
"Chinese assets are very safe," Geithner said in response to
a question after a speech at Peking University, where he studied
Chinese as a student in the 1980s.
His answer drew loud laughter from his student audience,
reflecting scepticism in China about the wisdom of a developing
country accumulating a vast stockpile of foreign reserves
instead of spending the money to raise living standards at home.
But later in the day, Chinese Vice Premier Wang Qishan said
it was important for the two nations to show the world they are
working together through their joint economic dialogue.
"We must through our dialogue send a clear signal that China
and the U.S. are engaged in practical cooperation to address the
crisis," Wang told Geithner, according to the Chinese Foreign
Ministry's website (www.mfa.gov.cn).
"This is important for boosting confidence and encouraging
global financial stability and economic revival," said Wang.
In his speech, Geithner renewed pledges that the Obama
administration would cut its huge fiscal deficits and promised
"very disciplined" future spending, possibly including
reintroduction of pay-as-you-go budget rules instead of nonstop
"We have the deepest and most liquid markets for risk-free
assets in the world. We're committed to bring our fiscal
deficits down over time to a sustainable level.
"We believe in a strong dollar ... and we're going to make
sure that we repair and reform the financial system so that we
sustain confidence," he said.
Geithner also offered strong backing for a bigger Chinese
role in international policymaking.
"China is already too important to the global economy not to
have a full seat at the international table," he said.
ECONOMY LOOKING UP
Geithner, who is due to meet President Hu Jintao and Premier
Wen Jiabao during two days of talks, described the recession as
still "powerful and dangerous" in much of the world.
Recent signs of improvement were not enough to change an
International Monetary Fund prediction that world output would
shrink this year for the first time in 60 years. And credit was
likely to be tight for some time, Geithner said.
But he added: "The global recession seems to be losing
Moreover, the U.S. financial system was healing and it now
seemed assured that the world would avoid financial collapse and
But Geithner said there could be no return to business as
usual either for the United States or China: both must change
their growth strategies as U.S. consumers pay down debt after
years of living beyond their means.
For China, which he said was in "an enviably strong
position", that meant reducing its dependence on exports.
"Purchases of U.S. consumers cannot be as dominant a driver
of growth as they have been in the past," he said.
"In China ... growth that is sustainable will require a very
substantial shift from external to domestic demand."
To that end, Geithner said a more flexible exchange-rate
regime for the yuan, which would almost certainly see the value
of the Chinese currency rise against the dollar, was
particularly important because it would spur more Chinese
A stronger yuan would make imports cheaper for China and
Chinese exports more costly for foreign buyers.
Geithner offered U.S. backing for a higher-profile role for
China in running global institutions including the IMF -- a
controversial proposition since it raises the sensitive issue of
reducing Europe's voting share in the global lender.
"The United States will fully support having China play a
role in the principal cooperative arrangements that help shape
the international system, a role that is commensurate with
China's importance in the global economy," he said.
In words clearly intended to soothe Chinese concerns that
its vibrant export economy might be targeted by U.S. lawmakers
who are feeling pressure from soaring American joblessness,
Geithner said the Obama administration would resist any such
"As we go through the severe stresses of this crisis, we
must not turn our backs on open trade and investment," he said.
"In return, we expect increased opportunities to export to and
invest in the Chinese economy."
Geithner said he was hopeful that General Motors Corp and
Chrysler would be able to stand on their own feet once they
emerge from bankruptcy.
GM will file for bankruptcy on Monday, U.S. officials said,
forcing the 100-year-old automaker once seen as a symbol of
American economic might into a new and uncertain era of
"We want a quick, clean exit as soon as conditions permit,"
Geithner said. "We're very optimistic these firms will emerge
(from restructuring) without further government assistance."
(Reporting by Glenn Somerville; Editing by Alan Wheatley/Toby