Geithner Says China Has Confidence in U.S. Economy

June 2 (Bloomberg) -- Treasury Secretary Timothy Geithner said China, the biggest holder of U.S. Treasuries, has expressed confidence in the U.S. economy and the Obama administration’s actions to fight the recession.

“I’ve actually found a lot of confidence here in China, justifiable confidence, in the strength and resilience and dynamism of the American economy,” Geithner said in an interview in Beijing with Chinese state media today.

China held $768 billion of Treasuries at the end of the first quarter. Premier Wen Jiabao called in March for the U.S. “to guarantee the safety of China’s assets” and central bank Governor Zhou Xiaochuan has proposed a new global currency to reduce reliance on the dollar.

Yu Yongding, a former central bank adviser who acted as the interviewer for the China Daily newspaper, told Geithner: “I worry about details. We will be watching you very carefully.”

Treasury yields increased by the most in eight months yesterday as investors bet that the U.S. employment report on June 5 will show the economy has yet to pull out of the recession. They fell today.

“China will be shooting themselves in the foot if they push this issue too hard,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “If they are too alarmist and contribute substantially to a dollar and Treasuries sell off, they are going to feel more pain than just about anybody in the world.”

‘Sophisticated Understanding’

Geithner cited a “very sophisticated understanding” in China of why the U.S. is running up budget deficits in the short-term while also pledging to rein in borrowing over the medium term. He reiterated the U.S. commitment to cut spending and pull back government aid to the financial system once stability returns.

“We have a strong, independent central bank which is committed to keep inflation stable and low over time, we’re committed to a strong dollar, we have the deepest, most liquid Treasury markets in the world and we will do everything that is necessary to try to make sure we’re sustaining confidence in U.S. financial markets, not just in the United States but around the world.”

When asked by Yu whether there will be sufficient demand for all the debt the U.S. will be selling this year, Geithner responded “I believe there will be.”

Geithner also backed the leadership of Federal Reserve Chairman Ben S. Bernanke, in a separate interview today with China Daily, to be posted on its website.

‘Impressive Job’

Bernanke “has done an enormously impressive job in the worst financial crisis in decades, working with central banks not just in China but around the world, making sure that markets have liquidity, that monetary policy is appropriately expansive,” Geithner said. “I am completely confident, as should you be, that he will have not just the will but the ability to bring this down so that we achieve the obligation of making sure that inflation is low and stable in the United States going forward.”

Geithner said some Federal Reserve programs to aid the financial system already have begun to shrink as conditions stabilize.

“If you look carefully at what’s happened already to the exceptional financial programs they’ve put in place, they have started to come down as conditions in the financial system have normalized,” Geithner said. “They were designed to have that basic self-liquidating capacity. And that process has already started.”