WSJ: Chinese Convey Concern on Growing U.S. Debt
At Joint Meeting, Geithner Plays Down Worries, Saying That Both Countries Agree on Need to Maintain Stimulus Spending
By TOM BARKLEY and DEBORAH SOLOMON
WASHINGTON -- A show of unity from the U.S. and China at the end of a high-profile two-day conference was overshadowed by continuing Chinese concerns about the U.S.'s growing pile of debt.
The U.S.-China Strategic and Economic Dialogue, a forum designed to foster closer cooperation, closed on a similar note to that set at the start by President Barack Obama, who stressed the countries'"mutual interests."
The two powers vowed to maintain efforts to pull the global economy out of recession and shore up financial markets. They also agreed on a plan to create more-balanced global growth in the future.
But like a banker visiting an overextended borrower, Chinese economic leaders repeatedly conveyed to their U.S. hosts the importance of managing the U.S. debt. Chinese Vice Premier Wang Qishan, in talks with Treasury Secretary Timothy Geithner and other officials, urged the U.S. to protect the value of the dollar.
"As a major reserve currency-issuing country in the world, the U.S. should balance and properly handle the impact of the dollar's supply," Mr. Wang said through an interpreter Tuesday.
China's Finance Minister Xie Xuren said the delegation "expressed the view that credible steps should be taken to prevent fiscal risks and to ensure sustainability" and that "high attention should be given to fiscal deficits." He said Mr. Geithner "stated clearly" that the U.S. is placing "a lot of importance" on the deficit.
Mr. Geithner, speaking at the summit's close Tuesday, said he wasn't concerned about China's focus, saying he believes the two countries are in "a very similar place" and that both agree on the need to keep fiscal and monetary stimulus in place.
"China, like the United States, understands that as we see recovery take hold, we're going to need to reverse those exceptional actions," he said.
China, the biggest creditor nation to the U.S., has been increasingly vocal about the potential inflationary impact of the U.S.'s monetary and fiscal policies. An estimated two-thirds of its more than $2 trillion in reserves is in dollar assets, including more than $800 billion in Treasurys.
Chinese officials have said they aren't calling for a withdrawal of the fiscal or monetary stimulus measures with the world still mired in recession. Mr. Wang acknowledged that the priority is for China and the U.S. to continue to boost demand to help lift up the world economy.
As a practical matter, there is little the Chinese can actually do beyond pressing for action. With so much of its holdings in U.S. dollars, China risks harming the value of its portfolio if it were to begin selling U.S. dollars.
"They don't want the U.S. economy to collapse because they are highly dependent on the U.S. economy in terms of economic activity and ... because they have a lot of their financial eggs in this basket," said Ted Truman, an economist with the Peterson Institute for International Economics.
Nonetheless, the Chinese focus has augured a shift in the relationship between the two countries. The Obama administration had hoped to use the summit to persuade the Chinese to make their economy less export-dependent. China's tightly managed currency policy, which used to top the agenda when the two met, was only "touched upon" by the U.S. side and didn't garner a response from Chinese officials, said Zhou Xiaochuan, governor of the People's Bank of China.
Top U.S. officials sought to reassure the Chinese about the rising debt load throughout the meeting, according to David Loevinger, the Treasury's senior coordinator for China affairs. Both sides had "serious questions" about the sustainability of each other's crisis measures, he said.
U.S. Federal Reserve Chairman Ben Bernanke talked about the exit strategies being considered by the central bank, Mr. Loevinger told reporters Monday. Lawrence Summers, director of the White House National Economic Council, and budget director Peter Orszag reaffirmed the administration's commitment to bringing down the fiscal deficit to a sustainable level by 2013. The administration estimates it will hit $1.8 trillion this fiscal year.
Mr. Orszag offered several ways that the administration plans to bring down the deficit.
In a twist, the focus on the deficit may help the U.S. make its argument that China should become less export-dependent and more focused on consumer demand.
The proposal agreed to by the two powers involves the U.S. continuing to bring down the current-account deficit and raise its savings rate, with China supporting consumption and moving away from export-led growth.