BEIJING — Treasury Secretary Timothy Geithner said today that the global recession seems to be losing force but that it will be critical for the United States and China to institute major economic reforms to put the world on a more sustained footing.
Geithner said a successful transition to a more balanced and stable global economy will require substantial changes to economic policy and financial regulation around the world and especially in the world's largest and third-largest economies.
"How successful we are in Washington and Beijing will be critically important to the economic fortunes of the rest of the world," Geithner said in a major economic address at Peking University, where he had studied Chinese as a college student more than two decades ago.
The Obama administration's chief economic spokesman was using his first trip to China as Treasury secretary to pursue closer economic ties with China, seeking to turn the page on years of acrimony between the two countries over trade issues.
Geithner said on his way to Beijing that he wanted to foster the same kind of working relationship with China that the United States has enjoyed for decades with major European economic powers.
In his speech, Geithner had extensive praise for the economic transformation China has achieved and avoided emphasizing past trade disputes, such as the aggressive campaign waged by the Bush administration to force China to move faster to allow its currency, the yuan, to rise in value against the dollar.
American manufacturers see the undervalued yuan as a primary culprit in the soaring trade deficits the United States has with China, deficits that critics contend have played a major role in the loss of millions of American manufacturing jobs.
Geithner struck a positive note on the global economy, noting a number of signs in the United States that the huge plunge in activity that occurred last year when the financial crisis struck with force had started to slow.
"The global recession seems to be losing force. … The financial system is starting to heal," Geithner said.
"These are important signs of stability and assurance that we will succeed in averting financial collapse and global deflation, but they represent only the first steps in laying the foundation for recovery," Geithner said. "The process of repair and adjustment is going to take time."
Geithner said the necessary reforms will include getting the U.S. budget deficit under control once the recovery is firmly in place, something he said the Obama administration was committed to doing.
He said China will need to strengthen its social safety net in such areas as pensions and health care so that the Chinese will feel more confident about spending more. That is viewed as critical if China is going to transform from an export-driven economy into one driven more by domestic consumption, a change Geithner said was essential to assuring balanced world growth in the years ahead.
"Our common challenge is to recognize that a more balanced and sustainable global recovery will require changes in the composition of growth in our two economies," he said.
Geithner sought to reassure the Chinese on the issue of getting control of the exploding U.S. budget deficit, which is projected to hit a record $1.84 trillion this year, a fourfold increase from last year's record, reflecting the massive spending to stimulate the economy and stabilize the banking system. China is America's biggest creditor, holding $768 billion in Treasury securities.
Geithner traveled to China on a military aircraft with the latest in communications equipment that allowed him to be in frequent contact with Steven Rattner, head of the administration's auto task force, and Obama economic aide Lawrence Summers, who phoned with updates on the pivotal weekend negotiations with General Motors Corp.