June 1 (Bloomberg) -- Treasury Secretary Timothy Geithner arrived in Beijing with a pledge that the Obama administration will control its borrowing as he sought to reassure China its holdings of U.S. government debt are safe.

“No one is going to be more concerned about future deficits than we are,” Geithner told reporters on the way to two days of meetings that start today in China’s capital.

Geithner will meet with Premier Wen Jiabao, who in March called for the U.S. to “guarantee the safety of China’s assets.” China is the largest foreign holder of U.S. government debt, which so far this year has handed investors the worst loss since at least 1977 on forecasts for ballooning federal budget deficits.

“I hope Geithner’s visit can soothe our nerves,” said Yu Yongding, a senior researcher at the government-backed Chinese Academy of Social Sciences and a former central bank adviser. “The Chinese public is worried about the safety of its foreign- exchange reserves,” Yu said in an e-mail.

Investor concern about a record American budget deficit helped send yields on the benchmark 10-year Treasury note to 3.74 percent on May 27, the highest level since mid-November. The 10-year note yield ended last week at 3.46 percent, little changed from a week earlier.

China held about $768 billion of Treasuries as of March, according to U.S. government data.

Rising Yields

Treasuries have lost 5.1 percent so far this year including reinvested interest, according to Merrill Lynch & Co. index data. The dollar has also slumped, with the Federal Reserve’s trade-weighted Major Currency Dollar index sliding 3.2 percent so far this year.

For the fiscal year that ends Sept. 30, the deficit is projected to reach a record $1.75 trillion from last year’s $455 billion shortfall, according to the Congressional Budget Office.

Geithner told reporters that U.S. and China must press forward with efforts to build a lasting global economic recovery.

“We are seeing more durable stability in the economy and the financial system is in substantially better shape,” Geithner said. “But we have a ways to go, and we need to keep working in the U.S. and with other major economies to restore conditions for a sustainable recovery.”

In an interview with Bloomberg Television May 21, Geithner said the administration’s goal is to cut the budget shortfall to 3 percent of gross domestic product or smaller. That would be down from a projected 12.9 percent this year.

China’s Concern

Seventeen of 23 Chinese economists polled in connection with Geithner’s visit said holdings of Treasuries are a “great risk” for the nation’s economy, according to a Chinese state media report yesterday. Still, the majority argued against quickly cutting them, the Beijing-based Global Times reported.

Geithner, 47, needs to show how the U.S. can prevent the value of China’s investment from being eroded by a weaker dollar or by the inflation that might be stoked by the stimulus money being pumped into the U.S. economy, according to Yu.

“It will be helpful if Geithner can show us some arithmetic,” he said.

Geithner told reporters on the way to Beijing that he’ll continue U.S. efforts to seek a larger Chinese role in organizations like the International Monetary Fund.

Including China

“We would like to build with China the kind of relationship we built with the G-7 over the last several decades,” Geithner said. “We are committed to reforming the international system and our interests are best served by giving China a stake in that process.”

The Treasury Secretary will also meet with President Hu Jintao and Vice Premier Wang Qishan. He is scheduled to speak at Peking University on U.S.-China economic relations.

Geithner has avoided a showdown on China’s currency policy, declining to repeat comments he made in written remarks to lawmakers after his Senate confirmation hearing in January that China was “manipulating” its currency.

He will encourage China to move toward a more flexible exchange rate, a U.S. Treasury official told reporters in Washington last week.

The Treasury released a transcript May 30 of a briefing Geithner gave last week at the Foreign Press Center in Washington. In it, he said he will stress with Chinese officials that he’s intent on maintaining the dollar’s strength.

“I will, of course, make it clear that we are committed to a strong dollar, that we are committed to bringing our fiscal deficits down over the medium term to a sustainable place, to a sustainable level,” Geithner said in the briefing May 27. “We believe in a strong dollar. A strong dollar is in the U.S. interest.”

He said the dollar’s role in the global financial system is “likely to remain a very substantial role for a very long period of time.”

To contact the reporter on this story: Rebecca Christie in Beijing at Rchristie4@bloomberg.net

Last Updated: May 31, 2009 14:24 EDT