William Overholt argues that as China reaches a threshold where success has eliminated the conditions that enabled miraculous growth, Xi Jinping is pursuing the riskiest political strategy of any important national leader. Alternative outcomes include continued impressive growth and political stability, Japanese-style stagnation, and a major political-economic crisis.
U.S. Treasury Sec. Henry Paulson opens Strategic Economic Dialogue, Dec. 2007
December 11, 2007
Secretary Henry M. Paulson, Jr. Opening Statement Meeting of the U.S.-China Strategic Economic Dialogue
Secretary Henry M. Paulson, Jr.
Meeting of the U.S.-China Strategic Economic Dialogue December 12, 2007
Good morning. It is a distinct pleasure to jointly convene this third meeting of the U.S.-China Strategic Economic Dialogue. Thank you, to all of my colleagues for attending and to Vice Premier Wu Yi and the distinguished Chinese delegation for hosting this important meeting.
In recognition of the importance and complexity of the U.S.-China economic relationship, a year ago September President Bush and President Hu created the SED. Their intent was not to replace the many economic dialogues already taking place. Rather, they envisioned an over-arching, senior level forum that is long term, comprehensive and strategic; one that would provide a positive forum to deal with common objectives, including immediate and sensitive economic issues as they arise.
We have spent the year since our inaugural meeting last December putting specifics to that vision. Now, at our third meeting, and after continuous on-going discussions in the interim, we see some areas of progress. We have built stronger relationships and established new, constructive channels of communication. Our focused engagement has produced agreements we may not otherwise have reached. And I am confident we can accomplish more.
I hope our meetings here develop further confidence among U.S. and Chinese leaders for continuing, candid discussions. Our goals should be to increase our understanding, expand our cooperation and broaden our partnership.
As we sit down to our work over these next two days, I will highlight two features of our economic ties: first, our deepening interdependence and; second, the rise of economic nationalism and protectionism in both our countries.
U.S. - China Economic Interdependence
There is hardly an issue - from trade, to product safety, to climate change - where American and Chinese economic interests do not overlap. The U.S.-China relationship has become central to each nation's interest and to maintaining a stable, secure and prosperous global economic system.
As our economic ties increase, Chinese and American citizens must have confidence in the goods they buy and another example of our growing interdependence is the challenge of ensuring food and product safety. We signed Agreements this week to bolster our cooperation on this critical issue; this is another critical step in what will be an on-going effort.
The United States welcomes the rise of a stable and prosperous China. China's leaders' have voiced concerns about China's macroeconomic stability, in particular mounting inflation, growing asset bubbles and possible overheating. A more flexible exchange rate policy is especially important to China now, given these risks. The pace of RMB appreciation remains one of the key levers to deal with China's internal and external imbalances.
The U.S. economy also faces challenges from our housing market and in our capital markets as risk is being reassessed and repriced. As we work through this period, deep and liquid U.S. capital markets are playing a vital role in maintaining stability, just as they have in providing the financing which allowed 69 percent of US families to own homes. Similarly, China needs to further open its financial sector, to develop capital markets that can provide access to the capital it needs for continued inclusive economic growth.
The United States and China also share the responsibility of ensuring secure and clean energy supplies, and protecting the environment. My perspective is not that of an official of a rich, developed nation, but one borne out by economic truths and past American experiences balancing these priorities. A healthy environment and a strong economy are not mutually exclusive; they are mutually necessary.
On the Rise of Economic Nationalism and Protectionist Sentiments
Whereas trade was once largely a source of stability in U.S.-China relations, it has recently become a source of tension, and not only because of safety concerns. Worries about the effects of foreign competition - through trade or through foreign investment - have led to a rise in economic nationalism and protectionist sentiments in both our nations.
Neither China nor the United States can protect our way to further prosperity. We must resist attempts to reduce transparency or increase regulatory obstacles in order to protect domestic industries. Taking short-term, politically expedient actions will almost certainly impede our log-term prosperity and ability to address long-term strategic issues.
The United States has shown support and taken action to advance China's global economic interests, such as greater Chinese roles in the IMF and the World Bank and supporting China's membership in the IADB and Financial Action Task Force. The U.S. Federal Reserve recently the branch application of China Merchant's Bank, and soon that bank will open a branch in the United States. The Bush Administration also has consistently opposed protectionist legislation directed at China. A US economy which is open to foreign investment and trade and welcomes competition has always been in our nation's best interest. But many people in the US are not sure that this continues to be true or that the benefits of trade are being shared fairly. Our arguments will be more effective as we fight to maintain our openness if the American people see China continuing to open its markets.
A Positive Vision for U.S.-China Economic Relations
Through the SED we remain focused on the most important long-term strategic issues, while addressing the most urgent short term problems. My focus is keeping our economic relationship on an even keel, through times of tension and times of calm. The success of the SED will ultimately be judged by whether or not we have demonstrated progress.
Again, thank you to our hosts and I look forward to working with you towards to achieve our shared objectives.
Please join the USC U.S.-China Institute, the East Asian Studies Center, and the USC School of Cinematic Arts for a screening of the 1993 Chinese film Woman Sesame Oil Maker (香魂女). It tells the story of a woman in a small village who buys a peasant wife for his mentally disabled son after her sesame oil business becomes unexpectedly successful. The screening will be followed by a Q&A with the director, Xie Fei (谢飞).