Geithner said that a successful transition to a more balanced and stable global economy will require substantial changes to economic policy and financial regulation around the world and especially in the world’s largest and third largest economies.
“How successful we are in Washington and Beijing will be critically important to the economic fortunes of the rest of the world,” Geithner said in a major economic address at Peking University, where he had studied Chinese as a college student more than two decades ago.
The Obama administration’s chief economic spokesman was using his first trip to China as treasury secretary to pursue closer economic ties with China, seeking to turn the page on years of acrimony between the two countries over contentious trade issues.
Geithner had told reporters on his way to Beijing that he wanted to foster the same kind of working relationship with China that the United States has enjoyed for decades with major European economic powers.
In his speech, Geithner had extensive praise for the economic transformation China has achieved and avoided emphasizing past trade disputes such as the aggressive campaign waged by the Bush administration to force China to move faster to allow its currency, the yuan, to rise in value against the dollar.
American manufacturers see the undervalued yuan as a primary culprit in the soaring trade deficits the United States has with China, deficits that critics contend have played a major role in the loss of millions of American manufacturing jobs.
Geithner struck a positive note on the global economy, noting a number of signs in the United States that the huge plunge in activity that occurred last year when the financial crisis struck with force had started to slow.
“The global recession seems to be losing force.... The financial system is starting to heal,” Geithner said.
“These are important signs of stability and assurance that we will succeed in averting financial collapse and global deflation, but they represent only the first steps in laying the foundation for recovery,” Geithner said. “The process of repair and adjustment is going to take time.”
Geithner said the necessary reforms will include getting the U.S. budget deficit under control once the recovery is firmly in place, something he said the Obama administration was committed to doing. He said China will need to strengthen its social safety net in such areas as pensions and health care so that the Chinese will feel more confident about spending more. That is viewed as critical if China is going to transform from an export-driven economy into one driven more by domestic consumption, a change that Geithner said was essential to assuring balanced world growth in the years ahead.
“Our common challenge is to recognize that a more balanced and sustainable global recovery will require changes in the composition of growth in our two economies,” Geithner said.
Geithner sought to reassure the Chinese on the issue of getting control of the exploding U.S. budget deficit, which is projected to hit a record $1.84 trillion this year, a fourfold increase from last year’s record, reflecting the massive spending to stimulate the economy and stabilize the banking system. China is America’s biggest creditor, holding $768 billion in Treasury securities.
While not a main focus of Geithner’s trip, the U.S. also hopes China will play a positive role in resolving a tense dispute with North Korea over its nuclear weapons program.
Geithner could not escape the fallout from the recession even as he crossed the globe. He took a military aircraft with the latest in communications equipment that allowed him to be in frequent contact with Steven Rattner, head of the administration’s auto task force, and Obama economic aide Lawrence Summers, who phoned with updates on the pivotal weekend negotiations with General Motors Corp.
Geithner spent the trip in a private cabin at the back of the plane that was equipped with a desk and a bed. Most of the time he was either working the phones, huddled with aides or revising the speech he was to give Monday.
China, with 1.3 billion people, ranks as the third largest economy after the U.S. and Japan. Geithner said China’s new status should be recognized with a bigger voice in such institutions as the International Monetary Fund.
In addition to meeting with some of his former professors on Monday, Geithner was scheduled to visit an economist training program set up by his father when the elder Geithner was in charge of Ford Foundation programs in Asia.
China has turned its huge trade surpluses with the U.S. into the largest holdings of Treasury debt, but has raised concerns about America’s commitment to deficit reform. Financial markets in recent weeks have sent long-term interest rates higher, a move that some attribute to worries about the U.S. budget deficits.