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Biden seeks to reassure China on U.S. debt

By Reuters
Friday, August 19, 2011 7:15 EDT
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BEIJING (Reuters) – U.S. 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 U.S. 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 that the U.S. economy would get back on track for healthy growth, echoing 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 U.S. 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 U.S. 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 U.S. treasuries.

“Very sincerely I want to make clear you have nothing to worry about,” Biden said.

“DON’T BET AGAINST AMERICA”

Earlier, the U.S. 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’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 U.S. 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 U.S. Treasury debt remain safe, despite the downgrade.

Chinese state media have repeatedly accused Washington of reckless fiscal policies that have created uncertainty about Beijing’s dollar assets. 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 foreign creditor to the United States.

Wu Zhifeng, an economist with China Development Bank, a state bank in Beijing, said Beijing can do little to divest its existing dollar holdings.

“Biden’s promise is right in the sense that there will be no U.S. treasury defaults, but his promise does not mean the purchasing power of China’s treasury holdings will not be eroded,” Wu said.

“MORE PRECIOUS THAN GOLD”

Xi said Biden had briefed him on Thursday “about the efforts of the U.S. government in spurring growth and jobs, cutting (the) budget deficit, properly handling the debt problem, and preserving the confidence of global investors.”

“The U.S. economy is highly resilient and has a strong capacity for self-repair,” said Xi, who was speaking to business leaders at the roundtable event. “We believe that the U.S. 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 China and the United States “need to coordinate their macro policies and make their fiscal system transparent to each other.”

“China and the United States are walking through this crisis together. If one loses, the other will, too,” Dong said.

Earlier, Biden acknowledged that China had legitimate concerns about its access to U.S. markets, just as Washington is worried about problems U.S. firms face in China.

Xi voiced optimism that China would avoid a so-called hard landing and that China hopes Washington will ease trade restrictions and provide fair treatment to Chinese firms.

He said that 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.

Separately, a U.S. official said the United States would announce nearly $1 billion in commercial deals between U.S. 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.

The previous evening, goodwill between the two nations briefly unraveled at a basketball court at the former Olympic grounds where a ‘friendship’ game between the Georgetown University Hoyas and the Bayi Military Rockets degenerated into a brawl.

(Additional reporting by Langi Chiang and Zhou Xin; Writing by Sui-Lee Wee; Editing by Ken Wills and Alex Richardson)

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