Budget deficit to fall, U.S. assures China

WASHINGTON — Top Obama administration officials sought to reassure their Chinese counterparts that the U.S. was committed to reducing its ballooning deficit and sought assurances from China that it would retool its economy to be less dependent on exports.

Speaking at the start of the U.S.-China Strategic and Economic Dialogue here, President Obama said Monday that the two countries had a "mutual interest in a lasting economic recovery" and that their partnership was "as important as any bilateral relationship in the world."

"The current crisis has made it clear that the choices made within our borders reverberate across the global economy — and this is true not just of New York and Seattle, but Shanghai and Shenzhen as well," Obama said.

"And that is the example we have set by acting aggressively to restore growth, prevent a deeper recession and save jobs for our people," he said.

But those actions have fueled concerns in China about the value of its large holdings in U.S. bonds, which would be eroded by increased inflation caused by large budget deficits.

Chinese officials had "serious questions" Monday about Obama-administration plans for pulling back its economic stimulus and financial rescue programs, said David Loevinger, the Treasury Department's senior coordinator for China affairs and the summit.

White House budget director Peter Orszag told the Chinese that the budget deficit would be reined in, Loevinger said in briefing reporters.

"He was very clear ... that the fiscal stimulus we put in place was necessary and it's the right thing and it's designed to extend through 2011, but it's not sustainable at the current rate and we're committed by the end of the Obama administration to bring it down to a sustainable level," Loevinger said.

"What was most important to the Chinese was to hear about the general trajectory of our policies," he said.

Treasury Secretary Timothy Geithner, a former Peking University student who has extensive expertise on Asian financial issues, again urged China to continue shifting its economy from one dependent on exports to the U.S. and other nations to one in which its own population can sustain growth.

Among those in attendance were Chinese State Councilor Dai Bingguo and Vice Premier Wang Qishan.

Dai said the recession has put U.S. and China "in the same big boat that has been hit by fierce wind and huge waves," and the nations will "try to cross the stormy water together."

But although the interests of the U.S. and China have "never been interwoven so closely," he said, the two countries can't agree on everything.

"Although we have differences in many areas, the United States will never become China, and China will never become the United States," he said.

U.S. officials said the focus of the first day of talks was broad. Climate change is one area in which officials from the two countries will wrangle. China has resisted the U.S. push for caps on pollution out of fears it will limit economic growth.

Obama stressed that he does not view China as a threat but as a partner in solving major global issues, including addressing climate change. And China should do the same, he said.

Obama referred frankly to tensions over human rights, saying the United States believes "that all peoples should be free to speak their minds — and that includes ethnic and religious minorities in China."

But he expressed respect for what he called an "ancient and dynamic" society, and noted that he had named two Chinese Americans to his Cabinet: Energy Secretary Steven Chu and Commerce Secretary Gary Locke, Washington's former governor.

"Some in China think that America will try to contain China's ambitions; some in America think that there is something to fear in a rising China. I take a different view," Obama said.

"I believe in a future where China is a strong, prosperous and successful member of the community of nations, a future when our nations are partners out of necessity but also out of opportunity," he said.

He also offered some philosophy from Chinese-born basketball star Yao Ming of the NBA's Houston Rockets. "As a new president and also as a basketball fan, I have learned from the words of Yao Ming, who said, 'No matter whether you are new or an old team member, you need time to adjust to one another.' "