Clinton Wraps Trip By Urging China's Investment

Secretary of State Hillary Clinton wrapped up her first overseas tour by attending a church service in the Chinese capital and meeting with women's leaders Sunday. She also suggested that by buying more U.S. treasury bonds, China would be helping its own economy.

In an interview with local media, Secretary Clinton said that buying more U.S. government debt would help the U.S. fiscal stimulus package, which would in turn create more demand for Chinese exports.

Clinton also joined in an online chat in which she urged China to adopt greener technologies as they develop their economy.

"The Chinese deserve to have a rising standard of living," Clinton said. "We just don't want you to make the same mistakes we made."

Clinton also met with women's leaders, including 82-year-old AIDS activist Dr. Gao Yaojie and other NGO workers whom she had met on previous visits to China.

In IMF Bonds, A Possible Rival For The U.S. Dollar

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Chinese Premier Wen Jiabao i i

In March, Chinese Premier Wen Jiabao warned the United States to guard the value of its currency. Liu Jin/AFP/Getty Images hide caption

itoggle caption Liu Jin/AFP/Getty Images
Chinese Premier Wen Jiabao

In March, Chinese Premier Wen Jiabao warned the United States to guard the value of its currency.

Liu Jin/AFP/Getty Images

In times of global economic crisis, the International Monetary Fund lends money to nations in trouble. But in the current recession, the IMF has found that it, too, is running out of money.

"We have made quite a large number of commitments of our resources in the last year," says Craig Beaumont, division chief of the IMF's finance department. The organization has loaned out about $150 billion, leaving it with just another $50 billion on hand.

Now the IMF has decided to raise an additional $70 billion the same way large companies do — by issuing bonds (a first for the IMF).

That part of the story is simple enough, but the IMF bonds touch on a far more profound topic: namely, what the world's reserve currency should be. Reserve currency acts as an anchor and a safe haven. It's the currency everyone measures their own against, and the one everyone reaches for in times of trouble. Right now, the world uses the U.S. dollar.

But emerging players like China and Russia have said they wouldn't mind if that changed.

And that's where this story gets more complicated. The IMF's new bonds aren't denominated in U.S. dollars. Instead, they'll be issued in a kind of hybrid called Special Drawing Rights. SDRs are a mixture of the U.S. dollar, the British pound, the euro and the Japanese yen.

The IMF uses SDRs internally, to calculate the money it lends to various nations. A few months ago, the head of China's central bank suggested that SDRs could become the basis for a new kind of global currency.

"The emerging markets are hoping, and China in particular is hoping, that this will start the debate," says Eswar Prasad, a Cornell University professor who once led the China division at the IMF. The bonds could "also start some real progress toward challenging the U.S. dollar's dominance in international financial markets. The Chinese would dearly like to break free of the embrace they have of the U.S. dollar, because they have no alternative, and they would desperately like to have an alternative."

The Problem Of Dollars

Beaumont, of the IMF, is quick to point out that Special Drawing Rights are absolutely not a currency. They're more of an accounting tool, a way to track where the IMF's money is going.

"No one ever carries SDRs around in their pocket," he says.

The problem for China is that it has more money coming in than it knows what to do with. It sells tons of stuff to the U.S. and gets billions of American dollars in return. Where should it put those dollars? Often, China buys U.S. Treasury bonds, because they're the safest investment around.

The IMF bonds will also be very safe, because they're essentially backed by the entire world.

China has pledged to buy what amounts to $50 billion of the new bonds. Russia has pledged to buy up to $10 billion, and so has Brazil.

Against the scale of the global economy, Prasad says, these amounts are relatively small. But if countries decided they didn't trust Treasury bonds so much anymore and began moving a lot of money elsewhere — say, to IMF bonds — that could be a big deal. It could spook the U.S. bond and currency markets, he says, and they are in a fragile mood.

There are a lot of reasons to think China, for all its trash-talking about the dollar, doesn't want to knock it too much. Brad Setser, an economist at the Council on Foreign Relations and an expert on the relationship between the Chinese and American economies, says Beijing would hurt its own cause by moving away from the greenback. "I don't think this is a step toward a new currency that is going to rival the dollar," Setser says.

That's because China needs the dollar to remain strong. It happens to hold more than $700 billion in U.S. Treasury bonds. And it's still buying more.

Secretary Clinton: 'We Want China To Grow'

Hillary Clinton visits the Geothermal Power Plant in Beijing on Saturday. i i

Secretary of State Hillary Clinton speaks with Mark Norbom, president and CEO of General Electric Greater China, as U.S. Special Envoy for Climate Change Todd Stern (left) and GE President and Regional Executive (China Region) Jack Wen (right) look on, during a visit to the Taiyanggong Geothermal Power Plant in Beijing on Saturday. Greg Baker-Pool/Getty Images hide caption

itoggle caption Greg Baker-Pool/Getty Images
Hillary Clinton visits the Geothermal Power Plant in Beijing on Saturday.

Secretary of State Hillary Clinton speaks with Mark Norbom, president and CEO of General Electric Greater China, as U.S. Special Envoy for Climate Change Todd Stern (left) and GE President and Regional Executive (China Region) Jack Wen (right) look on, during a visit to the Taiyanggong Geothermal Power Plant in Beijing on Saturday.

Greg Baker-Pool/Getty Images

Hillary Clinton took a tour of a low-emissions power plant in Beijing on Saturday before heading home from her first trip abroad as secretary of state. Much to the dismay of human rights groups, she didn't make the plight of dissidents and political activists a high priority on this trip. She said pressing China too hard could get in the way of a much broader agenda: economy, security matters and climate change.

Clinton's new climate change envoy, Todd Stern, joined her at the plant, which uses technology from GE.

"There is no way to preserve a safe and livable planet unless China plays an important role along with the United States," he said. "This is not a matter of politics or morality or right or wrong, it is simply the unforgiving math of accumulating emissions.

Clinton, who spent much of the rest of the day in formal meetings, seemed pleased to get out and talk to students gathered at the plant to hear her address on clean energy and how it could help China develop.

"We want China to grow," she said. "What we hope is that you won't make the same mistakes we made, because I don't think China or the world can afford that."

This is the sort of dialogue she's trying to promote in U.S.-China relations. In one very candid moment on the trip, she told reporters traveling with her that she didn't want the same old disputes over human rights to interfere.

"We know we are going to press them to reconsider their position about Tibetan religious and cultural freedom … and we know what they are going to say, because I've had those conversations for more than a decade with the Chinese," she said.

Her comments as secretary of state were a far cry from remarks she made as first lady at a 1995 conference on women. In a speech then, she challenged the Chinese government by declaring that women's rights are inseparable from human rights.

Her Chinese counterpart, Yang Jiechi, seemed to welcome the change.

"I said that given our differences in history, social system and culture, it is only natural that our two countries will have different views on human rights," Yang said.

Yang and Clinton said they spoke about human rights, but it seemed to be only in passing. They focused instead on plans for an economic and strategic dialogue they are preparing. Chinese authorities meantime were said to be keeping a close watch on dissidents and not letting some leave their homes while Clinton was visiting.

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