Geithner to Pursue Practical Goals, Tone in Trip to China

By Anthony Faiola
Washington Post Staff Writer
Friday, May 29, 2009

Treasury Secretary Timothy F. Geithner will arrive in Beijing on Sunday touting what appears to be a far more pragmatic approach to America's economic relationship with China than the tougher line administration officials, including President Obama, were outlining only a few months ago.

The secretary will use his three-day trip -- the administration's first major economic engagement with Beijing -- to urge Chinese leaders to keep up massive stimulus spending on big infrastructure projects, as well as find new ways to entice their consumers into spending more of their notoriously high personal savings to boost flagging global demand. Geithner will also seek to assuage concerns about U.S. government finances and regulatory reforms in a country that has become the single largest holder of U.S. government debt, said a senior Treasury official who spoke on condition of anonymity in accordance with Treasury policy.

Geithner is expected to refrain, however, from making forceful statements on the single thorniest economic issue between the two powers: China's alleged manipulation of its currency. On the campaign trail, Obama had endorsed proposals aimed at penalizing China for undervaluing its currency to keep its products artificially cheap overseas. Geithner, in written statements before Congress in January, additionally vowed to use "all diplomatic avenues" to confront China's currency manipulation.

But the administration has toned down the rhetoric in recent weeks. Geithner's written comments in January are now being described as mistaken language inserted by a low-level staffer. And last month, the administration declined to officially name China as a currency manipulator -- something that could have led to stiff new tariffs imposed on Chinese imports.

During the trip, Geithner would raise the currency issue, said the senior Treasury official. But it appears likely to be done within the context of a broader discussion over a number of structural changes China will be encouraged to make as its economy matures.

China will be urged to shift its economy away from a model that relies too much on overseas sales, to one that fuels growth more from domestic demand, as is true in the United States. Such a shift could begin to balance out the massive U.S. trade deficit with China and relieve U.S. consumers from their role as the principal driver of global demand, as Obama has called for. As part of that transition, a senior official said, the message would be sent that it is "important in bringing these shifts about to have a flexible exchange rate that the Chinese have [already] committed to move toward."

Those are not the kind of fighting words some long-standing critics of China's currency and trade policies may have hoped for.

"I'm of the belief that if we're trying to correct and bring some honesty to Wall Street right now, it also makes sense to bring the same to currency valuations around the world," said Rep. Tim Ryan (D-Ohio), a co-sponsor of legislation submitted last week that would censure nations like China that allegedly manipulate their currencies. "I'm concerned that [the administration] is not going to do that, and that they are going to put this issue on the back burner again. They're kind of backpedaling."

The United States, experts point out, has relatively less leverage with the Chinese than it once did, and it is uncertain whether a direct confrontation with a nation that is the single biggest bankroller of the U.S. government would really serve Washington's interests.

Any move by China to sell off large chunks of U.S. debt could result in far higher borrowing costs for the U.S. government, even putting upward pressure on U.S. mortgage rates. China, for its part, has sent recent signals that the United States should tread lightly, issuing highly public concerns about the "safety" of its massive investment in U.S. debt and urging Washington to watch its spending.

Perhaps more important for Geithner -- who once studied Chinese in Beijing -- will be using his face time with the top leadership to establish a longer-term working relationship with Chinese officials.

Among other major figures, Geithner will be meeting with Chinese Premier Wen Jiabao, President Hu Jintao and Vice Premier Wang Qishan during his three-day trip, which also includes a keynote speech on U.S.-Chinese economic relations at Peking University.

"The Chinese are very interested in the progress of U.S. financial regulation reforms, and Geithner will be giving them a reading on where and how that process is going," said Nicholas Lardy, senior fellow at the Peterson Institute for International Economics. "The truth is, China is in a much stronger position than we are here."

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