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POLITICAL ECONOMY
After stumble, US Treasury chief reaches out to China
by Staff Writers
Washington (AFP) May 31, 2009


US Treasury Secretary Timothy Geithner.

US Treasury Secretary Timothy Geithner makes his first trip to Beijing Sunday, exploiting his early links with China to steer relations with the Asian giant under President Barack Obama's watch.

Having started on the wrong foot by criticizing China for currency manipulation, Geithner will now have to grapple with issues ranging from key Chinese holdings of dollar based assets to the global economic turmoil when he meets President Hu Jintao, Premier Wen Jiabao and others during his visit.

But analysts are confident that his previous Chinese connections will come a long way to establishing links with the leadership in Beijing as the Obama administration banks on China's credit to bankroll the recession-struck US economy and its growing influence to help ease the global economic crisis.

This despite the fact that he lacks the firm business background of his predecessor, Henry Paulson, reputedly the most well-connected post-war Treasury Secretary, having travelled extensively to Beijing as a private banker.

"Yes, he doesn't quite have the same business background as that of Mr. Paulson but I think Mr Geithner will turn that to his advantage," said Nicholas Lardy, a China expert at the Peterson Institute for International Economics in Washington.

"I think quite frankly that Mr. Geithner will be a better listener with the Chinese," he said, citing Paulson's sometimes "very strong advice" to the Chinese on reforming the financial system.

"Now they recognize that what Paulson was advocating did not turn up so well," Lardy added.

China has not introduced any of the risk-carrying exotic derivative products, such as the unregulated credit default swap contracts, which are at the center of the current American financial chaos that erupted during the Bush administration.

Geithner, an ex-governor of the Federal Reserve Bank of New York, is a China hand. He studied and taught Mandarin during his college days and later also learned Chinese at the influential Peking University in Beijing.

He also helped former globe trotting US diplomat Henry Kissinger, who was instrumental in the landmark opening of diplomatic ties with Beijing, write the China and Japan chapters in one of his books.

His father Peter Geithner was also the first representative in Beijing for the Ford Foundation, possibly the oldest US non-government organization in China.

Obama administration officials took pains to emphasize the Treasury chief's Chinese connections at a media briefing before his departure from Washington Saturday for his two day Beijing visit beginning Monday.

Geithner would deliver a speech at Peking university, his alma mater, during the trip and "will meet with students and with professors and we hope with some former professors of his," one official said.

He would also visit the offices of the Ford Foundation, which has funded economics education in the United States of a large group of Chinese who are now senior officials, academics and members of the economic establishment in Beijing.

"Coincidentally, the Ford Foundation was established by secretary Geithner's father," the official said.

Despite his history with China, Geithner created a stir at his confirmation hearing in January when he said in a written reply to a senator that Obama "believes that China is manipulating its currency."

It triggered a storm in China and signaled that Obama will take the Chinese head on over the currency manipulation charges.

But Obama administration officials swiftly moved to contain the damage, saying the reply was written by midlevel staff helping Geithner answer the plethora of questions from senators.

On taking office, Geithner also rapidly reached out to the Chinese.

"I have talked to my counterparts in China over the past few months much more than I've talked to my counterparts from any other country," he told the New York Times in a recent interview.

In Beijing however Geithner faces the tough task of convincing the Chinese to maintain their massive US bond holdings under threat by burgeoning US debt and prodding them to make their their currency more flexible.

Being the top holder of the bonds, China is the largest creditor to the United States aside from being the world's largest holder of US dollars as a reserve currency, at nearly two trillion dollars.

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