US Treasury Secretary Timothy Geithner said Tuesday he had found "a lot of confidence" in the US economy among Chinese leaders he met on his two-day visit here. In other circles, however, skepticism was widespread.
When Mr. Geithner told a student audience Monday that Chinese assets invested in Treasury bonds were "very safe," his intended reassurance drew loud and dubious laughter.
A survey of 23 top Chinese economists, published in the daily Global Times on the eve of his arrival, found that 17 feared that Beijing's huge dollar holdings put China in "a very dangerous position."
America's largest creditor
As China has amassed vast foreign-exchange earnings from its worldwide exports over the past decade, it has become America's biggest creditor, holding $768 billion in Treasury bonds and almost as much again in other US dollar assets.
That makes China highly vulnerable to a fall in the dollar's value, which some experts say is likely if the Obama administration's loose credit policy and ballooning deficit lead to inflation. Premier Wen Jiabao worried aloud last March about the value of Chinese dollar investments.
Geithner worked hard here to convince Chinese leaders and analysts that "we are very committed to make sure that when recovery is established, we go back to living within our means, that we bring our fiscal deficits down," as he told Chinese state TV on Tuesday.
Geithner also said Tuesday that the US would "do everything that is necessary to try to make sure we're sustaining confidence in US financial markets, not just in the United States but around the world."
"Talk is cheap," he scoffs. "If the US really wants to convince China that Treasury bonds are a safe investment, we need to see some credible measures," such as inflation-linked interest rates.
Chinese officials did not comment on Geithner's reassurances, but they echoed his insistence that Washington and Beijing must work more closely together if they are to pull the world out of the current financial and economic crisis.
"We should strengthen strategic mutual trust and deepen pragmatic cooperation," said Vice Premier Wang Qishan, Geithner's counterpart at high-level talks planned for this summer in Washington. Those talks, he added, will "send a message that China and the United States are cooperating substantively."
China likely to keep buying Treasury bonds
Nor do many analysts here believe the Chinese government will stop buying Treasury bonds, even if they now appear a riskier investment than in the past. "Stabilizing the US dollar conforms to Chinese interests," says Shen Jiru, a prominent economic commentator here. "If China sold its bonds, the value of the dollar would fall," he adds. A 10 percent drop would cost Beijing $120 billion.
Ordinary citizens, however, appear to have little sympathy for such arguments, to judge by comments on Internet chat rooms.
"It's a big joke that China's money will disappear with nothing to be gained, and the beneficiary still says that the money is safe," wrote one Internaut from Hebei Province on Sina.com, a popular Internet portal.
"Don't trust Uncle Sam," warned another. "Why do they enjoy the pleasures and we pay the bill?"