Timothy Geithner's first trip to China as treasury secretary comes at a vulnerable time for the Obama administration.
Mired in a brutal recession, the United States needs Beijing to buy more American goods, allow its currency rise and make other moves to narrow an enormous trade gap. The U.S. also needs China's help to confront any military threat from North Korea.
Yet Washington's leverage has waned just as China's power over the U.S. has grown.
China is now America's biggest creditor. As of March, it held $768 billion of Treasury securities – about 10 percent of publicly traded debt.
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The U.S. needs China's money to finance U.S. budget deficits, which are soaring as Washington tries to end the recession and bolster the banking system. The administration estimates this year's budget deficit will hit $1.84 trillion, four times last year's deficit.
Geithner, who left Saturday for meetings Monday and Tuesday with Chinese leaders, carried an ambitious U.S. goal of persuading the Chinese government to adopt policies that would transform its nation of savers into spenders.
Geithner spent the flight to Beijing working on a speech he planned to give at Peking University that was expected to lay out the administration's recovery program. He was also expected to talk about the administration's determination to deal with the government's soaring expenditures once the U.S. economy is recovering.
The current U.S. administration, just like the Clinton and Bush administrations, is convinced that the key to a prosperous global economy rests heavily with China. The U.S. wants Beijing to rely more on domestic spending and less on its exports to power its own economy – and the world's.
That shift would uncork enormous buying power and help rebalance world trade. It could hasten an end to the global recession and narrow America's huge trade gap because the Chinese would buy more American products.
China would benefit, too.
“Beijing really wants Washington to be successful in bringing the U.S. economy out of this recession as fast as it can because it is critical to Beijing's own economic growth,” said Kenneth Lieberthal, a China expert at the Brookings Institution.
The Chinese are growing nervous about the explosion of U.S. borrowing. Like a bank worried about its loans, the Chinese have fretted over America's budget gap. In March, Premier Wen Jiabao said, “Of course, we are concerned about the safety of our assets.”
Those comments, plus remarks by the head of China's central bank about whether the world needs a new top reserve currency to replace the dollar, jolted financial markets.
The administration insists it isn't worried that the mound of debt it's creating will jeopardize America's sterling AAA bond rating. But Treasury officials said Geithner still intends to reassure the Chinese.
Geithner plans to stress that the administration sees the $1trillion-plus deficits for this and next year as temporary.