Geithner tries to reassure China over U.S. deficit

BEIJING -- U.S. Treasury Secretary Timothy Geithner tried to reassure China ahead of his talks in Beijing that the United States will get its deficit in order.

In an interview released Saturday, China's official Xinhua News Agency reported Geithner as saying the Obama administration is "going to tackle its deficit issue seriously."

Geithner and Secretary of State Hillary Rodham Clinton are leading a delegation of nearly 200 officials to Beijing as part of an effort to help President Barack Obama deliver on his pledge to double U.S. exports within five years and create 2 million jobs.

Foreign analysts expect the U.S. deficit to be one of the key issues China brings up in the second round of the U.S.-China Strategic and Economic Dialogue.

China is the largest foreign holder of U.S. debt. It boosted its holdings of Treasury debt by 2 percent to $895.2 billion in March -- the first increase in six months.

Last year, the U.S. government borrowed $1.4 trillion, nearly 40 cents of every dollar it spent. U.S. deficits that continue well in excess of 4 percent of the nation's total economic production are unsustainable, most major economists say.

Geithner spoke to Xinhua on Friday. In a Chinese version of the interview also released Saturday, Geithner said Obama has set a clear road map on the issue, with aims to cut the deficit by a large margin in the next three to five years.

Xinhua reported him as saying that any new debt was mainly a product of the financial crisis and recession.

This is not the first time the U.S. has tried to calm China's concerns on the issue.

Obama told Chinese President Hu Jintao in a meeting in London in April 2009 that once its economy recovers, the United States will work to cut the deficit in half and bring it down to a sustainable level.

The talks in Beijing that start Monday also are hoped to keep pressure on China to allow its currency to rise in value against the dollar as a way to narrow America's huge trade deficit with China, the largest trade gap the United States runs with any country.

American manufacturers say the yuan is undervalued by as much as 40 percent, but Geithner in April delayed a report Treasury is required to send Congress twice a year declaring whether any countries are manipulating their currencies to gain unfair trade advantages against U.S. companies.

In January 2009, during his Senate confirmation process, Geithner said Obama "believes that China is manipulating its currency" -- a comment that China quickly rejected.

Geithner has said little publicly on that issue since.