Chinese Leadership Voice Confidence in US Economy

U.S. Vice President Joe Biden wrapped up his four-day visit to China on August 21. At each step of the tour， Biden stressed the importance of cooperation amid global uncertainty， and offered assurances that the U.S. economy， despite its problems， remained strong. His message was echoed by Beijing’s top leaders， who voiced confidence in the U.S. economy.

Biden’s visit was the first high-level meeting between the world’s two biggest economies since intensifying concerns about sovereign debt problems in the U.S. and the latest bout of international market turmoil.

Many analysts viewed Biden’s trip as a tour to convince the largest foreign holder of U.S. debt that its investments were safe after a bitter political debate in Washington over U.S. debt and deficit problems sparked a credit downgrade by Standard Poor’s.

But both Biden and his Chinese hosts showed they wanted to avoid unnerving blow-ups and inject some confidence into financial markets deeply concerned about the prospects of a new recession.

Biden said on August 22 that Chinese leaders did not ask for reassurance. “Just like with us， they were hoping we’d begin to grow again seriously， because it’s in their interest，” Biden said in an interview with reporters traveling with him to Tokyo after his China visit.

Background

Soon after the state visit to Washington by President Hu Jintao in January， Vice President Joseph Biden committed to meet this summer with his Chinese counterpart， Xi Jinping， who is expected to succeed Mr. Hu next year.

Mr. Biden postponed his original departure date in July to help hammer out the agreement that forestalled default on some obligations but failed to avert a downgrade of America’s AAA credit rating by Standard Poor’s.

China holds more than US$1.1 trillion in United States Treasury securities， making it the country’s largest foreign creditor. About two thirds of China’s US$3.2 trillion of foreign exchange reserves are in dollar assets.

Some ordinary Chinese have publicly criticized the Chinese leadership for investing so much in American government securities.

Chinese state media and commentators have criticized Washington for its fiscal practices in the run-up to Mr. Biden’s visit， voicing concern that U.S. economic policy could hurt China’s economy and reduce the value of its more than US$1 trillion holdings of U.S. government debt.

The trip was overshadowed by the continuing economic problems in the United States， including the lengthy debate over raising the debt ceiling， the downgrading of the nation’s credit rating by Standard Poor’s， wild stock market fluctuations and growing alarm in China over the safety of the country’s holdings of Treasury bonds， according to Washington Post.

Meetings in China

Mr. Biden held his first day of meetings on August 18 with Chinese Vice President Xi Jinping.

“China and the United States have ever-more extensive common interests and we shoulder ever-more important common responsibilities，” Mr. Xi said in his opening remarks. He then voiced confidence in the ability of the U.S. economy to “adapt and rebound.”

Biden stressed the importance of cooperation between the US and China in achieving economic stability of the world.

China’s economy will not suffer from a “hard landing”， Chinese Vice President Xi Jinping said at a roundtable discussion with Biden and Chinese and U.S. business leaders on the morning of the second day of Biden’s visit.

He was speaking amid concerns about the outlook for China’s economy， which is facing persistent inflation and the effects of a lending binge in the past couple of years.

Mr. Xi reiterated that Beijing will keep its macroeconomic policy stable but also make it more flexible to sustain economic growth while combating inflation. He said China will continue to boost the spending power of its consumers during the current five-year plan， which runs through 2015 and aims to shift the country’s economy from one based on investment and exports to one more focused on consumer spending.

Xi said China would give all businesses equal treatment when seeking government contracts， addressing concerns raised by U.S. executives that they were being shut out in some cases.

Xi reiterated the need for China and the United States to work together to restore confidence in international markets.

Biden echoed that view. “I have absolute， unequivocal confidence in the strength and vitality and the growth of the American economy，” he said. “No one’s ever made money betting against America.”

Chinese Premier Wen Jiabao， in an afternoon meeting with Mr. Biden， expressed his own confidence in the U.S. economy， and the safety of U.S. Treasuries.

Wen Jiabao told Biden， “You have clearly told the Chinese people that the United States is committed to preserving the safety， liquidity and value of its public debt， which will undoubtedly enhance investors’ confidence.”

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.

Biden met later Friday with Presi- dent Hu Jintao， who called the vice president an old friend of China’s and said his visit would help enhance cooperation between the two countries， Xinhua reported.

Biden travels on the third day of its visit to the western province of Sichuan， which was badly damaged by a 2008 earthquake and which lately has been attracting more U.S. companies interested in investing in China’s hinterland.

He delivered a speech at Sichuan University in Chengdu in southwestern China’s Sichuan province on Aug. 21， wrapping up his China visit.

Comments

If this week’s China visit of Joe Biden is to produce anything beyond ceremony， Washington will want it to be a message of reassurance for its biggest creditor of America’s economic strength. At such times， form can be as important as substance. —Financial Times

In China nowadays there’s a variety of viewpoints. Some people see the United States as in decline. But the Chinese leadership’s view is that although the U.S. economy faces difficulties， it will improve. I think this visit was to send a clear signal that China does not see the United States in decline and believes it can overcome the current hardships. —Zhu Feng， professor of international relations at Peking University

The main factor impacting China’s future purchases of U.S. treasuries would not be the leaders’ efforts at confidence building. China will buy more U.S. assets. But it is not because of Biden’s attempts to boost confidence. It is more about the reality that in the short term， the U.S. dollar and treasuries are safe assets. —Ting Lu， economist with Bank of America-Merrill Lynch in Hong Kong

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. —Wu Zhifeng， economist with China Development Bank in Beijing

One of the primary purposes of the trip is to get to know China’s future leadership， to build a relationship with Vice President Xi. Simply put， we’re investing in the future of the U.S.-China relationship. —Antony Blinken， nationalsecurity adviser to Mr. Biden

Outlook for bilateral trade

The U.S. sovereign-debt problems have sparked concerns that Chinese exporters might face the challenges of appreciation of RMB， dwindling foreign demand， rise of trade protectionism and increasing trade frictions.

Biden said August 22 that the United States would continue to press China to let its yuan currency rise， but he did not expect that to happen quickly in the coming year as China went through its leadership transition.

According to statistics of the U.S. customs， the growth rate of Chinese exports to the United States has been declining this year. The rate was 20.8% for January to February and 17.3% for January to April.

Zhou Shijian， researcher in USChina relations with Qinghua University， predicted that the impact of the U.S. debt problems on Chinese exports would be felt in the third quarter of this year. However， many analysts held that China exports won’t drop by a large margin.

Zhou expects things to turn for the better in the fourth quarter， as the U.S. is planning to introduce the third economic stimulus package in September， to reduce unemployment rate and boost the economy. The U.S. presidential election will be held in 2012. History shows the unemployment rate has to be under 7% for a president to win re-election.