Geithner Faces China Skeptics

“Watch us…and watch what we do—in staging a strong recovery and controlling the rising deficit.”

Those were the words of US Treasury Secretary Timothy Geithner as he faced Chinese skeptics at a China Daily news conference on Tuesday. On numerous occasions over the past several days, Geithner’s message was that the United States will spawn a strong recovery, control the rising budget deficit, and thereby protect the value of dollar-denominated assets. “We are absolutely committed to doing that, and I am completely confident that we will be able to do it,” Geithner told unconvinced Chinese economists at the news conference.

Despite the predictable reassuring statements made by China’s top leaders about the visit, designed more not to offend than to convey any specific message, individuals who attended most of Geithner’s presentations and conferences told me that Geithner was not quite getting what he wanted out of his trip. If he was expecting to get blanket assurances that the Chinese would keep buying U.S. bonds, he came up well short, they said. Throughout the meetings, the message was that the U.S. is by no means “out of the woods” as far as the Chinese continuing to buy U.S. government securities.

In an editorial on the subject, China Daily summed up the attitude of unofficial China best. “Though opinion is divided sharply over the necessity to buy more US treasury bonds, few Chinese would think that the country’s vast holdings of U.S. financial assets are secure as the dollar’s long term value is in doubt.”

When describing what it’s like to work in China, I tell audiences that everyone here is from Missouri, the “show me” state. The Chinese care more about what you do than what you say. Being designated a “big talker” in China is the kiss of death. Geithner will now have to go back to Washington and deliver on what he told the Chinese.

As China Daily put it, “Words alone are inadequate reassurance. Decisive action to rebuild its economy alone can convince foreign creditors that the U.S. is not expecting a free lunch to bail itself out of the crisis.”

The U.S. government deficit is projected to reach $1.75 trillion for the fiscal year ending September 30, 2009, about 12.9 percent of the country’s GDP. The Obama administration aims to reduce that to 3 percent by the end of its four-year term. With the value of its $1.2 trillion of U.S. denominated assets riding on the outcome, everyone in China will be watching.

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