Aug. 22 (Bloomberg) -- Vice President Joe Biden repeated a reassurance to Chinese leaders that their investment in U.S. Treasuries is safe, while warning that curtailing freedoms in Asia’s largest economy could hinder growth and stifle innovation.
“I know that some in China believe that greater freedoms threaten economic progress by undermining social stability,” Biden said in remarks at Sichuan University in Chengdu yesterday on the final day of his trip to China. “I believe history has shown the opposite to be true.”
Biden’s remarks followed his three days in Beijing, where he told Chinese Premier Wen Jiabao on Aug. 19 that China has nothing to fear when it comes to its investment in U.S. Treasuries. China’s Treasury holdings of $1.17 trillion, while down from their high of $1.18 trillion in October, have increased for the past three months, data compiled by Bloomberg show.
The U.S. and China have followed different paths, Biden said yesterday. While China has embraced parts of a free market system it has also resisted political openness and the state has kept its hold on economic affairs, he said.
“Prosperity peaks when governments foster both free enterprise and free exchange of ideas, that liberty unlocks a people’s full potential and in its absence unrest festers,” he said.
Biden’s visit was scheduled before the first-ever downgrade of U.S. debt by Standard & Poor’s on Aug. 5 and that issue has dominated public interactions between the vice president and Chinese leaders. A day after S&P cut U.S. debt to AA+ from AAA, China’s official Xinhua News Agency said the U.S. government must realize it can no longer “borrow its way out of messes of its own making.” China is the biggest single foreign owner of U.S. debt.
“The Chinese people should take solace,” Biden said in the southwestern Chinese city. “You’re safe.” During his visit to Beijing, Biden had told Wen: “We appreciate and welcome your concluding that the United States is such a safe haven because we appreciate your investment in U.S. Treasuries.” Biden said he wanted to make clear “that you have nothing to worry about in terms of their viability.”
Biden, who is on a three-nation, nine-day trip to Asia, struck a harder tone on trade during his final day in China, saying “we’re in trouble” when U.S. investors can’t have fully owned subsidiaries of their companies operate in many sectors in China and are “entirely excluded from competing in other sectors.” Those are “restrictions that no other major economy imposes on us or anyone else so broadly.”
Biden also said China and the U.S. must work together on nuclear weapons proliferation, particularly in North Korea and Iran.
On Aug. 19, Biden held a roundtable discussion in Beijing with about 20 U.S. and Chinese business leaders, including Coca-Cola Co. Chief Executive Muhtar Kent. China’s undervalued exchange rate, opening up the Chinese market to U.S. exports, and protecting intellectual property rights are top concerns for U.S. companies.
J. Stapleton Roy, director of the Kissinger Institute on China and the U.S. ambassador to China from 1991 to 1995 said the U.S. cannot afford to press China too much on trade.
“If we move to restrict trade this would be the counterpart to the Smoot Hawley tariff in the Great Depression which had an enormous negative impact,” Roy said in an interview. “Trade protectionism as a way of dealing with our trade imbalance with China would be a step in the wrong direction.”
Roy said the Chinese will naturally want to let their currency appreciate more to help them deal with inflation.
“There’s a built in corrective factor” in the U.S.-China relationship, he said. Because it’s so “immensely important to both countries” when it becomes too strained leaders will work to improve it.
Biden, who arrived in Beijing on Aug. 17, must have fielded a barrage of questions from Chinese officials about U.S. debt during private meetings, said Elizabeth Economy, director of Asia studies at the Council on Foreign Relations in New York.
She said top on the list would have been: “What’s the long term game plan and can China rely on the United States not to try to basically destroy the value of China’s holdings?”
Administration officials insist that the main point of the vice president’s visit is to get to know his counterpart China’s Vice President Xi Jinping, the man most likely to replace Chinese President Hu Jintao in 2013.
Xi came to Chengdu from Beijing and traveled with Biden to Dujiangyan, a city in Sichuan Province where tens of thousands of people were killed by an earthquake in May 2008.
Biden stopped by an English class at the Dujiangyan Qingchengshan High School yesterday, where Cisco Systems Inc. had donated electronic white boards and LCD televisions following the temblor. Biden, who was dressed in shirtsleeves along with Xi, took questions from a group of about 30 students while at the school.
“We have no reason to fear one another,” Biden said, referring to the sometimes strained relationship between the U.S. and China.
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