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U.S. Treasury Secretary Henry M. Paulson, Jr. on shared responsibilities and benefits, 2007

Treasury Secretary Henry M. Paulson, Jr. spoke in New York on Nov. 8, 2007 shared responsibilities and shared benefits in U.S.-China economic relations
November 8, 2007
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Sec. Paulson spoke at the China Institute Executive Summit on the day after remarks made by a Chinese official helped to generate a dramatic drop in the value of the U.S. dollar on world markets.  

New York, NY-- Good evening. Thank you, Ginny, and the China Institute for inviting me to address your Executive Summit. The China Institute's more than seven decades of work, promoting educational and commercial exchanges with China, underscore the value of a long-term, constructive approach to U.S.-China relations.

This conference, China Goes Global: New Perspectives and New Strategies, could not be more timely. The U.S.-China economic relationship is among my highest priorities. It is also among the most challenging. 

China and the United States are two of the largest and most influential economies in the world. That prominence brings responsibilities. Addressing these responsibilities together will create greater benefit for both our peoples. That proved true when we worked together to bring China into the WTO. The requirements of WTO accession led to an acceleration of reform in China. China now has the responsibilities and must fulfill the obligations of a major WTO member, just as China has reaped the rewards of the rapid growth that followed WTO accession.

The United States and China have a unique role to play in the coming decades in assuring a strong global economy and shaping the global economic agenda. Greater coordination and enhanced cooperation is required – indeed, demanded – of us in order to meet those responsibilities.

These dynamics informed the creation of the Strategic Economic Dialogue (SED) by President Bush and President Hu Jintao in 2006. They have established a forum that allows both governments to communicate at the highest levels on issues of long-term and strategic importance to ensure bilateral economic stability and prosperity. Through the SED, we also work to produce tangible short-term results which are necessary to demonstrate progress towards achieving our long term objectives.

Our economic dialogue now focuses on going beyond China's WTO commitments. Admission to the WTO represents a minimum level. It is important that China fully meet those commitments but an equally important challenge is to accelerate reform beyond those commitments. China's leaders understand the role of markets in attaining stable, non-inflationary growth to meet the needs and aspirations of their people. Our discussions have not been about the direction of reform, but rather about the pace. As China's economy rapidly evolves, the challenges that it faces and the policies required to continue China's development have also changed. While some in China and elsewhere may see danger in moving too quickly with reforms, I believe moving too slowly is the bigger risk to Chinese and world prosperity. 

As major global economic players, we both have responsibilities to maintain open trade and investment regimes, implement domestic policies that promote the health of our own economies and of the global economy, enhance the safety and integrity of trade, and promote energy conservation and environmental protection. 

 The first of the responsibilities that the United States and China share in the global economy is to maintain open trade and investment regimes. Open economies spur competition, improve productivity, and create good jobs – in our countries and around the globe.

The U.S. economy is one of the most open in the world, and I am committed to working to maintain this openness, even in the face of rising protectionist sentiments in the U.S. Almost thirty years ago, Chinese leaders clearly recognized the value of an open economy; but China still has much more work to do. This challenge is becoming more difficult as it confronts strong protectionist sentiment from its domestic companies which, like all market-driven firms, welcome competition in other industries much more than in their own.

The efforts of each of us to maintain open trade and investment regimes at home strengthen the efforts of the other. The United States is working to reinforce our open economy policy and keep our markets open to investment and trade. Frankly, it is easier to keep the U.S. economy open if the American public sees China continuing to open up their markets. By joining efforts, we will be more effective in working against this protectionist tide and in promoting the competition and openness to investment that drive greater innovation and productivity.

Just as openness to competition has kept the U.S. economy on the cutting edge, further openness to trade and competition is clearly in China's interest. For China, further opening of key sectors to competition is critical to achieving the growing prosperity that the Chinese people expect and deserve. For example, opening the financial services sector to foreign participation will enable China to leap-frog years of costly and problematic practices. Chinese households across the nation would more quickly gain access to a wider range of higher-yielding savings instruments they need to build assets more rapidly for higher living standards today and in retirement.

Opening markets to trade and competition would further signal to the international community China's willingness to assume a role as a responsible global economic power. Also, given growing protectionist sentiments around the world, if Chinese reforms slow, China may confront a backlash from other nations.

 

The U.S. and China also share a responsibility to support the health of the global economy. By working together on this, we can create greater benefits for the people of both our nations.

Balanced growth – growth that does not generate large trade imbalances -- is vital to each of our country's prosperity and to sustained global economic growth. In the United States, we remain committed to advancing policies that maintain strong growth and enhance international confidence in our economy, financial markets and securities. We are reducing our budget deficit, and we need to address rising entitlement costs. This is in our interest, and is also key to addressing global imbalances in the medium term. We must also maintain the robust productivity growth that has allowed the United States to be a key driver of global prosperity in recent years.

For China, balanced growth requires continuing economic reform. The resource-intensive, export-intensive economic model that has driven China's extraordinary growth has led to growing imbalances that threaten internal harmony and spur trade conflict. Sustaining China's development in the future will require growth that is based more on increases in productivity, rising domestic household demand, and a greater role for services. All of this depends on a greater role for the market in allocating capital and a reduced reliance on administrative decisions.

China's leaders have pledged to carry out the economic reforms necessary to rebalance their economy. Of course, implementation is the name of the game. The expanding size and complexity of the Chinese economy, in particular the influence of provincial governments in policy implementation, make meeting these responsibilities more challenging. The question is not whether China can grow quickly over the short term; the question is whether it can grow differently and consistently over the long term.

To enable market forces to efficiently rebalance the economy and spread prosperity to all the Chinese, China needs more flexible prices, including a much more flexible, market-driven exchange rate. Exchange rate flexibility is also key to allowing monetary policy – the most potent instrument for guiding an economy – to focus on assuring stable and non-inflationary growth.

Also, the RMB's exchange rate is increasingly being viewed by many countries as a source of unfair competition. China is increasingly seen as out of step with international norms and expectations, as evidenced by the growing number of national leaders and multilateral institutions calling for currency appreciation. The G-7 Finance Minister's meeting held in Washington two weeks ago concluded with a communiqué that specifically called for RMB appreciation.

The United States has a stake in China's structural economic reforms because we have a stake in a prosperous, stable China. We do not fear an economically stronger and more competitive China, which benefits the Chinese people, the American people, and the prosperity of the global economy.

Working together is already bringing benefits to both our nations, but we have the potential to do much more. We will only realize that potential through direct and intense engagement such as the Strategic Economic Dialogue.

Last May, when senior Chinese officials came to Washington for our second meeting of the Strategic Economic Dialogue, we both committed to make consistent strides towards financial sector liberalization. As a result, a major U.S. bank recently announced plans to establish at least ten rural banks and loan companies in China's countryside. It will join the Chinese government's pilot program to allow foreign investors to operate in the rural areas of western and central China. Such transactions, over time, will bring transformational benefits to China's economy and to U.S.-China economic ties.

WTO accession and integration into the world economy has allowed China to dramatically grow and thrive. As large beneficiaries of global integration, the U.S. and China share a responsibility to maintain the integrity of trade. The benefits of trade can only continue to flow when consumers around the world have confidence in the quality and integrity of the goods they buy. While the safety of food and product imports is a global problem, it has touched our bilateral trade relationship in an acute way in recent months.

We need to work together through respectful, science-based processes to ensure that products coming to America from China are safe. Effective management of these safety issues will have a long term, positive impact on U.S.-China trade relations. As China overcomes these issues, it will be further integrated into the global trading system and this will benefit China's people and help sustain China's economic growth.

Through the SED framework, we have expanded bilateral consultations to improve the U.S. government's ability to certify the safety of food and product imports coming from China. The United States will continue to seek opportunities to work with China – by sharing our extensive experience – as China builds the regulatory infrastructures necessary for safe and secure trade in a globally integrated world. On Tuesday, the Bush Administration announced a significant expansion of Food and Drug Administration and Consumer Product Safety Commission authority to inspect and certify imports, and an effort to work with Congress to implement measures to ensure effective inspection of imports. We can use this as a model as we work with China in this crucial area.

The United States and China also share the responsibility of ensuring secure and clean energy supplies, and protecting the environment. China's acute environmental problems are degrading the health of its population and ecosystems as well as undermining China's long-term economic potential. 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. As I learned during my July trip to Qinghai Province, no one understands this better, or is more concerned about it, than the Chinese people. I applaud the Chinese leadership's recent effort to expend extensive financial resource to save Lake Tai.

Addressing the issue of climate change by working together on a post-2012 framework will help the United States and China meet our global environmental responsibilities more effectively, and bring greater benefit to our citizens. And, if we are to be successful in this, it must be against the backdrop of strong economies. I was especially pleased that China participated in the recent Major Economies Meeting hosted by President Bush.

As the world's largest consumers of oil and as net-importers, we clearly share an interest in energy security and energy conservation. We should expand cooperation in the development of new sources of supply and in minimizing supply shocks. Through cooperation in the development of new alternative energy technologies, we can help ensure that the benefits of a clean, healthy environment endure for coming generations. 

In December, cabinet-level officials from both China and the United States will meet in Beijing for the third round of the Strategic Economic Dialogue. We have a robust and comprehensive agenda which will require focused and consistent leadership in both Washington and Beijing. We will focus on long-term strategic issues, as well as manage short term issues to show progress and concrete results along the way. By addressing the most pressing, short-term issues we can build the confidence to maintain the long-term, strategic relationship that will define the trajectory of U.S.-China economic ties.

As our two proud and powerful nations work together to meet our responsibilities, our citizens and the global economy will benefit. This relationship may ultimately determine many of the patterns of global prosperity, international security, and economic stability in the 21st century.

Thank you.

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