Clinton Opens Key China Talks: Time For A "Multipartner" World

WASHINGTON — President Barack Obama put forward his top economic officials on Monday to try to reassure China that the U.S. will not let huge budget deficits or runaway inflation jeopardize the value of Chinese investments here.

Among the officials meeting with Chinese representatives Monday, the first day of two-day talks, were Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, National Economic Council Director Lawrence Summers and Peter Orszag, Obama's budget director.

U.S. officials told reporters that the U.S. side stressed to the Chinese that the United States has a plan to bring the deficit down once the economic crisis has been resolved. Officials said Bernanke discussed the Fed's exit strategy from the current period of extraordinary monetary easing.

On the Chinese side, Assistant Finance Minister Zhu Guangyao told reporters that Beijing and Washington had "profound exchanges" on the issue of the U.S. economy.

The Chinese, who have the largest foreign holdings of U.S. Treasury debt at $801.5 billion, have been expressing worries that soaring deficits could spark inflation or a sudden drop in the value of the dollar, thus jeopardizing their investments.

"We sincerely hope the U.S. fiscal deficit will be reduced, year after year," Zhu, speaking through an interpreter, told reporters after the first day of talks had included.

"The Chinese government is a responsible government and first and foremost our responsibility is the Chinese people, so of course we are concerned about the security of the Chinese assets," Zhu said.

The discussions on America's deficits and China's role in financing them highlighted the growing economic importance of China, now the world's third largest economy.

In his remarks, Obama declared a new era of "cooperation, not confrontation" between the two nations as both sides sought to underscore the importance of the revamped Strategic and Economic Dialogue meetings.

"I believe that we are poised to make steady progress on some of the most important issues of our times," the president told officials from both countries assembled in the vast atrium of the Ronald Reagan Building.

"The relationship between the United States and China will shape the 21st century, which makes it as important as any bilateral relationship in the world," Obama said.

The discussions in Washington represent the continuation of talks begun by the Bush administration. While the initial talks focused on economic tensions, Obama expanded the agenda to include foreign policy issues such as America's drive to get China's support for more international pressure to curb North Korea's nuclear ambitions.

Secretary of State Hillary Rodham Clinton and Treasury Secretary Timothy Geithner were leading the U.S. team. The Chinese delegation was led by Chinese State Councilor Dai Bingguo and Vice Premier Wang Qishan.

David Loevinger, Treasury's senior coordinator for China affairs, said that Orszag and Summers both stressed the commitment of the administration to attacking the U.S. deficits. He said that Bernanke provided details of the Fed's strategy for unwinding the low interest rates it has engineered and the sizable amount of fiscal stimulus in a way that does not generate unwanted inflation in the United States.

"There were serious questions about what the economic outlook is and ... our plans for withdrawing stimulus," Loevinger told reporters at a briefing by U.S. officials on the first day of talks.

Geithner traveled to Beijing last month to assure Chinese officials that federal budget deficits, which have ballooned because of government efforts to deal with the recession and stabilize the financial system, would be reined in once those crises have passed.

In their public comments Monday, Geithner and Wang both spoke of hopeful signs that the global economy was beginning to emerge from its worst financial crisis since the Great Depression.

Geithner said the stimulus packages put together by Beijing and Washington had made a substantial contribution to fighting the global downturn and represented a milestone in economic cooperation between the two nations.

The United States, the world's largest economy, accounts for about 22 percent of global output, and China around 7 percent. The combined impact of the massive stimulus programs should make a difference, economists said, in cushioning a recession that appears to be bottoming out in the United States and some other countries.

"At present, the world economy is at a critical moment of moving out of crisis and toward recovery," Wang said, speaking through a translator.

He said Americans were already moving to boost their personal savings rates. Economists have long argued that is necessary to controlling U.S. trade deficits because it means Americans are not consuming as much in imports from China and other countries.

"We are committed to taking measures to maintaining greater personal saving and to reducing the federal deficit to a sustainable level by 2013," Geithner said at the opening session of the talks.

Geithner did not spell out how the administration planned to accomplish those objectives. Many private economists have said the Chinese are right to worry about a U.S. budget deficit that is projected to hit $1.85 trillion this year, four-times the previous record, and under the administration's estimates will not dip below $500 billion over the next decade.

Geithner did say that it would be a "huge contribution to more rapid, balanced and sustained global growth" if China shifted toward more domestic-led growth and away from the current extensive reliance on exports.

While Chinese officials have pledged to move in this direction, it was unclear that the changes would be fast enough or substantial enough to satisfy U.S. demands.

In his remarks, Obama said that the United States and China have a shared interest in clean and secure energy sources. The two nations are the world's largest emitters of the pollution blamed for global warming, but so far China has resisted calls to set specific caps on emissions or to eliminate tariffs on clean energy technology that the United States and other countries would like to sell them.

The administration did praise China for its help in the nuclear standoff with North Korea. Clinton said the administration was grateful for the "close cooperation" it received from China in response to Pyongyang's recent missile launches.

While the U.S. trade deficit with China has narrowed slightly this year, it is still the largest imbalance with any country. Critics in Congress say unless China does much more in the currency area, they will seek to pass legislation to impose economic sanctions on Beijing, a move that could spark a trade war.

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Associated Press writers Foster Klug, Jeannine Aversa and Steven Hurst contributed to this report.