Geithner reassures Chinese their dollar assets are safe

US Treasury Secretary politely asks rulers to devalue nation's currency

The American Treasury Secretary, Timothy Geithner, has sought to reassure the Chinese government that their dollar-denominated assets are secure.

Mr Geithner, during his first official visit to China, told an audience at Peking University in Beijing yesterday that "Chinese financial assets are very safe", despite widespread concerns that the scale of US government borrowing and the massive programme of "quantitative easing" now under way will lead eventually a burst of inflation and downward pressure on the US currency. Those concerns were highlighted yesterday when benchmark US Treasury 10-year yields surged by their highest margins in four months. Reports suggested that US manufacturing shrank in May at the slowest pace in eight months and spending on construction unexpectedly rose in April.

The Chinese government holds about $700bn of US Treasury securities, part of a total official holding of about $1.5trillion in dollar-denominated assets, including private-sector debts. Such vast national capital derives principally from China's correspondingly large trade surpluses with the US, running at $200bn-plus in each of the past five years.

A number of senior Chinese officials have voiced concerns about the dollar. In March, the governor of the central bank of China, Zhou Xiaochuan, suggested the US dollar should be relieved of its role as the world's reserve currency and be replaced by the special drawing rights issued by the IMF. Wen Jiabao, the Chinese Prime Minister, recently declared: "We have lent a huge amount of money to the United States. Of course we are concerned about the safety of our assets."

America's budget deficit, said the Treasury Secretary, would have to come down to about 3 per cent of GDP for it to be put on a "definitely downward path", though it is likely to be more than four times that figure over the next year.

Mr Geithner also took the opportunity to tell his hosts what the Obama administration "expected" of them – a rebalancing of Chinese growth away from exports and towards domestic consumption, a revaluation of the renminbi, and improved opportunities for Western firms to invest in and trade with the Chinese economy.

The Treasury Secretary caused a diplomatic frisson in March when he stated, during his confirmation hearings to the Senate, that President Barack Obama "believes that China is manipulating its currency". Yesterday he was more polite, saying: "Greater exchange rate flexibility will help reinforce the shift in the composition of growth, encourage resource shifts to support domestic demand, and provide greater ability for monetary policy to achieve sustained growth and low inflation in the future."

In return, Mr Geithner once again expressed America's keenness to see China play an enhanced role in international financial affairs, including a louder voice at the IMF, where Chinese representation is far lower than the size of her economy would warrant; she has roughly the same say as Italy. Despite broad agreement that both countries need to address the so-called "global imbalances" that, many believe, are the root cause of the current financial crisis and recession, there seems little the "G2" can do to engineer a radical recasting of their economic relations in the short term.

The US needs China to continue purchasing its government debt. Meanwhile, the Chinese will continue to depend on exports to fuel her growth; the average Chinese citizen still has only the fraction of the purchasing power of a typical Westerner. Though slower, Chinese growth is still projected by the IMF to be as high as 6.5 per cent this year.

Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
scotland decidesIs a huge gamble on oil keeping First Minister up at night?
Arts and Entertainment
Rosalind Buckland, the inspiration for Cider with Rosie died this week
booksBut what is it like to be the person who inspires a classic work of art?
Life and Style
techApple has just launched its latest mobile operating software – so what should you do first?
News
A male driver reverses his Vauxhall Astra from a tow truck
newsThe 'extremely dangerous' attempt to avoid being impounded has been heavily criticised
PROMOTED VIDEO
Arts and Entertainment
Lionel Messi in action for Barcelona
filmSo what makes the little man tick?
Arts and Entertainment
tvReview: An undercooked end (spoiler alert)
News
i100
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'
Sport
Cesc Fabregas celebrates his first Chelsea goal
footballChelsea vs Schalke match report
Arts and Entertainment
Toby Jones (left) and Mackenzie Crook in BBC4’s new comedy The Detectorists
tvMackenzie Crook's 'Detectorists' makes the hobby look 'dysfunctional', they say
Life and Style
fashion

Olympic diver has made his modelling debut for Adidas

News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Recruitment Consultant - Soho - IT, Pharma, Public Sector

£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week