CORRECTION China Geithner
Andy Wong  /  AP
U.S. Treasury Secretary Timothy Geithner shakes hands with Chinese President Hu Jintao in Beijing.
updated 6/2/2009 9:09:04 AM ET 2009-06-02T13:09:04

U.S. Treasury Secretary Timothy Geithner concluded his reassurance tour of China on Tuesday, telling leaders of the country that holds the largest share of America's debt that U.S. President Barack Obama was committed to tackling the soaring budget deficits.

The two nations announced that they would launch revamped high level talks the week of July 27, discussions that will not only cover efforts to strengthen economic ties in the midst of a severe global financial crisis but also foreign policy concerns.

The first round of what are scheduled to be annual meetings will take place in Washington with the U.S. delegation led by Geithner and U.S. Secretary of State Hillary Rodham Clinton.

Geithner wrapped his first visit to China since becoming treasury secretary with meetings with both President Hu Jintao and Premier Win Jiabao.

He told Hu that because of the cooperation already demonstrated by the two countries, there were beginning to be "early signs of stabilization" in a global economy that was battered after the financial crisis hit with force last fall.

"We have already demonstrated the capacity of our two countries to work together on the global stage to lay the foundation for economic recovery," Geithner told Hu at the start of their meeting.

Geithner said earlier that he believed the Chinese understood that the administration was committed to acting decisively to deal with the budget deficits once the economy has started to recover and the financial system has stabilized.

"What I sense is a fair amount of confidence in the dynamism of the U.S. economy, that we will solve this crisis and go back to living within our means," Geithner said in a meeting with reporters. He also delivered the same message in a round of interviews with Chinese media.

Hu told Geithner during their meeting that he appreciated Geithner's efforts to work with Chinese officials to develop a cooperative approach in tackling the financial crisis.

Geithner said that in his talks with Chinese officials they saw the need to move aggressively to pursue efforts to jump-start economic growth and stabilize the banking system even if in the short term that meant rising budget deficits.

Wen in the public part of their discussions Tuesday made no mention of the comments he had made last March about worries over the rising U.S. budget deficits, remarks that triggered shockwaves through the global financial system.

China is the largest holder of U.S. Treasury securities. Wen's comments raised worries that interest rates could suddenly start increasing, perhaps choking off any recovery in the United States, and the dollar could start sinking in value if the Chinese started dumping their vast holdings of U.S. debt.

However, the reception Geithner received on his trip seemed to show that the two countries, the world's largest and third largest economies, were determined to work together cooperatively to deal with the current downturn.

The treasury secretary said in a round of interviews on his last day in China that he had assured Chinese officials that the administration was determined to bring down the size of the deficits once the current crisis has passed.

"We are very committed to make sure that when recovery is established, that we go back to living within our means, that we bring our fiscal deficits down to a sustainable level, that we unwind and reverse these exceptional measures that we've taken in the financial sector," Geithner said in the interview with Chinese state television.

In an interview with China Daily, Geithner had praise for the actions taken by the Federal Reserve. Geithner said Fed Chairman Ben Bernanke had done an "enormously impressive job in the worst financial crisis in decades."

Chinese officials did not comment publicly on Geithner's reassurances, but judging from the reaction of the college students, Geithner may still have some explaining to do.

China holds $768 billion of Treasury securities, about 10 percent of America's publicly held debt, making China America's largest creditor, a ranking it achieved last fall when it surpassed Japan.

The Obama administration has projected that its aggressive moves to fight the deficit with a $787 billion economic stimulus program and shore up the banking system with a $700 billion bailout fund would push this year's budget deficit to $1.84 trillion, four times the previous single-year record.

Geithner insisted that recent increases in the interest rates investors were demanding to hold U.S. Treasury securities were not a sign of investor unease but a reflection of improving economic conditions.

On Monday in a speech to students at China's prestigious Peking University, Geithner sad that China's investment in the United States "are very safe. ... We have the deepest, most liquid financial markets in the world."

Geithner stressed during his stay in China that the Obama administration was interested in forging a new, cooperative relationship with China.

As part of that effort, Geithner emphasized areas of agreement and played down areas of discord such as America's huge trade deficit with China, which American manufacturers see as the result of unfair trade practices pursued by China such as keeping its currency artificially low against the U.S. dollar.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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