US Vice President Joe Biden on Friday said China had “nothing to worry about” concerning the safety of its vast holdings of Treasury debt, while China’s Premier Wen Jiabao gave a ringing endorsement of the resilience of the debt-ridden US economy.
The exchange came on the second day of Biden’s five-day visit to China where he is seeking to reduce distrust between the world’s two largest economies and build relations with Chinese leaders. Wen said he was confident the US economy — which investors fear could slip into recession following a run of poor data — would get back on track for healthy growth. That echoed earlier comments from China’s vice president and heir apparent, Xi Jinping.
“It’s particularly important that you sent a very clear message to the Chinese public that the United States will keep its word and its obligations with regard to its government debt, it will preserve the safety, liquidity and value of US Treasuries,” Wen told Biden.
Both sides have been at pains to project a harmonious image during the trip, although there was an unscripted note of discord on Thursday night when a basketball game between a US college team and a Chinese professional side erupted in a fight. Wen’s comments were the first by a senior Chinese leader to directly address the roiling debt crisis in Washington since this month’s credit rating downgrade by Standard and Poor’s. In response, Biden told Wen that Washington appreciated and welcomed China’s investment in US treasuries. “I want to make clear you have nothing to worry about,” Biden said.
‘DON’T BET AGAINST AMERICA’: Earlier, the US vice president told his hosts that “no one has ever made money betting against America,” according to a transcript of remarks made with Xi. Biden also met with Chinese President Hu Jintao. Biden’s China stop is the first leg of an Asia tour that will include visits to Mongolia and Japan.
The upbeat tone from Wen and Xi, who is expected to be China’s next president, was in stark contrast to the sharp criticism by state media of Washington’s handling of its economy, for which China is the biggest foreign creditor.
Their words highlighted the complex and intertwined relationship between the world’s two largest economies. While China has tussled with the United States on trade, Internet censorship, human rights and US arms sales to Taiwan, it has also sought to steady ties with Washington. Chinese officials have long sought assurances that Beijing’s vast holdings of dollar assets including US Treasury debt remain safe, despite the downgrade. Analysts estimate two thirds of China’s $3.2 trillion in foreign exchange reserves, the world’s largest, are in dollar holdings, making it the biggest US foreign creditor.
Ting Lu, an economist with Bank of America-Merrill Lynch in Hong Kong, said the main factor impacting China’s future purchases of US treasuries would not be the leaders’ efforts at confidence building. “Will China buy more US assets? Yes. But it is not because of Biden’s attempts to boost confidence. It is more about the reality that in the short term, the US dollar and treasuries are safe assets,” he said. Wu Zhifeng, an economist with China Development Bank, a state bank in Beijing, said Beijing can do little to divest its existing dollar holdings, though “Biden’s promise … does not mean the purchasing power of China’s treasury holdings will not be eroded.”
‘MORE PRECIOUS THAN GOLD’:
Xi said Biden had briefed him on Thursday on US efforts to right the economy. “The US economy has a strong capacity for self-repair,” said Xi, who was speaking to business leaders at the roundtable event. “We believe that the US economy will achieve even better development as it rises to challenges.” Xi reiterated the need for China the United States to work together to restore confidence in international markets, adding that “confidence is more precious than gold.”
Dong Xian’an, chief economist of Peking First Advisory in Beijing, said the two countries “need to coordinate their macro policies and make their fiscal system transparent to each other.”
Earlier, Biden acknowledged that China had legitimate concerns about its access to US markets, just as Washington is worried about problems US firms face in China.
Xi said China would give all businesses equal treatment when seeking government contracts, addressing concerns raised by US executives that they were being shut out in some cases.
Wen said he hoped the United States would take steps to relax restrictions on Chinese exports of high-tech products, according to a statement on the Chinese government website.
Separately, a US official said the United States would announce nearly $1 billion in commercial deals between US companies and China. Despite the positive official statements, occasional discordant notes interfered with the two sides’ efforts to build trust. At one press conference, media handlers suddenly ushered reporters out of the room while Biden was still speaking, citing an arbitrary time limit.
