US secretary of state tells investors debt ceiling issue will be resolved

HONG KONG - Top diplomats from China and the United States on Monday pledged to preserve "the hard-won peace and stability in the Asia-Pacific region" in informal talks they called "fruitful".

State Councilor Dai Bingguo and US Secretary of State Hillary Clinton met on Monday afternoon in Shenzhen.

Clinton arrived in Hong Kong late on Sunday after attending meetings on the Indonesian island of Bali.

The two officials exchanged views on bilateral ties and issues of common concern, including the situation on the Korean Peninsula, according to a press release by the Foreign Ministry.

The press release did not mention the current South China Sea issue and US President Barrack Obama's meeting with the Dalai Lama earlier this month, which drew strong protests from China.

Dai reiterated China's stance on Taiwan and Tibet-related issues during the meeting with Clinton, and the "two sides agreed to jointly preserve and promote the hard-won peace and stability in the Asia-Pacific region", the press release said.

The two sides called the meeting fruitful, and agreed to keep in close communication.

It's not the first time that Clinton met her Chinese counterpart in an informal meeting. Last October, Clinton flew to Sanya, Hainan province, from an East Asia summit in Hanoi, for an unofficial meeting with Dai.

The meeting on Monday came at a critical time following Obama's meeting with the Dalai Lama and tension over US intervention in South China Sea disputes.

Clinton told Foreign Minister Yang Jiechi while they met on the sidelines of a regional forum on Friday that the US understands the complexities of the South China Sea dispute and takes no position on the issue.

She added that Washington supports measures conducive to the settlement of the dispute, and has no intention of getting involved or making it a problem in China-US relations.

Earlier on Monday, Clinton reassured Asian investors in Hong Kong over US debt worries, saying she was confident that Obama would ultimately reach a deal with congressional leaders on the debt ceiling.

"I am confident that Congress will do the right thing and work with President Obama to take the steps necessary to improve our long-term fiscal outlook," Clinton said in a speech to the US Chamber of Commerce.

The urgent task to realign economies after the global financial crisis demands rigorous reform, she said.

"We must save more and spend less. And we must borrow less as well.

"Our partners must meet this change and changes of their own."

Clinton, at the end of a lengthy trip that began with a conference on Libya in Turkey in mid-July, said that America's future is closely linked with the future of the Asia-Pacific region and that thousands of US companies are looking to the region for new markets.

The challenge is how to turn a generation of growth in the region into a century of shared prosperity, she said. "We are bullish on Asia's future ... We are bullish on America's future too."

Joanne Yim, chief economist at Hang Seng Bank, said that the lackluster US economic recovery suggests that Asia will continue to attract capital inflow.

"Investors will remain bullish on Asia, and economies like the Chinese mainland, Hong Kong and Singapore are still destinations for capital flow due to the growth of their economies," said Yim.

Economic experts believe that the US Congress will secure a deal on the debt ceiling before the Aug 2 deadline.

"The US has learned the lessons from 1979 when it partially defaulted on its debt. It rendered billions in losses as financing costs increased significantly," Wang Jianhui, chief economist with Southwest Securities, said. "If the ceiling is not raised, the US itself will lose more than its creditors. So that won't happen."

Dong Xiaojun, a professor with the Chinese Academy of Governance, said that even if the US raises its debt ceiling, China still stands to lose.

"More US bonds on the market will drag down the value of the dollar and the yields of existing bonds. China holds a massive amount of these bonds."

About one-third of China's $3-trillion foreign exchange reserves are invested in US Treasuries.

"China is trapped in a dilemma. China's always said it wants to diversify its foreign exchange reserves away from the dollar, but there seems to be few options, with the euro-zone crisis and a sluggish Japanese economy," Dong said.

"The only way to reduce the risk for the nation's reserves is to make structural changes to its economy and rely more on domestic demand."

Before the lunchtime address, Clinton met with Hong Kong Chief Executive Donald Tsang and also later met several Legislative Council members.

Qin Jize, Wu Jiao and Gao Changxin contributed to this story.

China Daily