Timothy Geithner moved today to reassure the Chinese Government that its huge holdings of dollar assets were safe as he reaffirmed his faith in a strong US currency.

Mr Geithner, in China on his first visit as US Treasury Secretary, sought to allay concerns that Washington’s growing budget deficit would fan inflation which, in turn, would undermine the dollar and US bonds.

“Chinese assets are very safe,” Mr Geithner said, answering a question after his opening address at Peking University this morning.

His answer was greeted with laughter by the students, who question the wisdom of China spending huge amounts of money on US bonds instead of improving domestic living standards.

China is the biggest foreign owner of US Treasury bonds, holding $768 billion (£468 billion) at the end of March.

Mr Geithner reiterated that the Obama Administration would cut its huge fiscal deficits and stood behind the strong dollar.

“We have the deepest and most liquid markets for risk-free assets in the world," he said. "We’re committed to bringing our fiscal deficits down over time to a sustainable level.

“We believe in a strong dollar … and we’re going to make sure that we repair and reform the financial system so that we sustain confidence.”

Mr Geithner urged China to reduce barriers to American companies seeking access to its markets after benefiting for years from open trade and investment.

“Chinese growth and expanding Chinese demand is a tremendous opportunity for US firms and workers, just as it is in China and the rest of the world,” Mr Geithner told the audience at the university, where he studied Mandarin in the early 1980s.

“China has benefited hugely from open trade and investment, and the ability to greatly increase its exports to the rest of the world," he said.

"In turn, we expect increased opportunities to export to and invest in the Chinese economy.”

Mr Geithner also called on China to make its currency, the yuan, more flexible.

“An important part of this strategy is the Government’s commitment to continue progress toward a more flexible exchange rate regime,” he said.

Mr Geithner encouraged China to shift away from export-driven growth to concentrate more on domestic consumption, thereby insulating itself from fluctuations in global demand.

Mr Geithner will spend today in a series of meetings with senior Chinese government economists, including Wang Qishan, its vice-premier.

“These meetings will give us a chance to discuss the risks and challenges on the economic front, to examine some of the longer-term challenges we both face in laying the foundation for a more balanced and sustainable recovery, and to explore our common interest in international financial reform, Mr Geithner said.

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