In recognition of the importance and complexity of the US-China economic relationship, in September 2006 President George W. Bush and President Hu Jintao created the “Strategic Economic Dialogue” between our countries. Their intent was not to replace the many economic dialogues already taking place, but to create a senior-level forum that was both comprehensive and strategic. A forum that would also build trust on both sides by demonstrating progress on the immediate issues we face.
The SED has made substantial progress in achieving these goals. The US and China have built stronger relationships and established constructive channels of communication that didn’t previously exist. These innovations have helped keep the US-China economic relationship on an even keel, even in times of tension. Because we have a framework for high-level discussions, we can – and do – pick up the phone and talk.
The SED meeting next week in Beijing will focus on five areas: integrity of trade and product safety; balanced economic development, including financial sector reform; energy efficiency and security; environmental sustainability; and bilateral investment. The meeting comes at a delicate time, as a new group of leaders moves into China’s senior positions, and as the agenda has been broadened to include food and product safety, energy efficiency and security, and environmental sustainability. These issues carry deep implications for economic ties.
Consumers need to have confidence in the safety of the products they purchase, whether produced at home or abroad. China’s management of food and product safety issues will have a long-term impact on trade relations, the sustainability of China’s growth strategy, and its further integration into the global trading system. US and Chinese government agencies are working together to address these issues.
Likewise, for both our countries, greater energy efficiency and security requires reliance upon market price signals, technology, innovation, and diversified energy sources. The Global Nuclear Energy Partnership, clean coal development through FutureGen, and industrial efficiency audits represent some of the most productive areas of ongoing cooperation.
We also encourage China’s active participation in the Major Economies Meeting efforts to develop a post-2012 framework for greenhouse-gas reduction. I was pleased to see that a large Chinese energy company, Shanghai Electric, recently indicated public support for substantial reductions in greenhouse-gas emissions.
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One pressing issue – for the US, China, and the global economy – is China’s move to a more flexible exchange-rate policy. China is reforming its policy, as a part of a move to a more market-determined exchange rate. In the past year, the RMB has appreciated by 6%, but the pace is not fast enough to reduce China’s global trade surplus, its internal imbalances, or foreign-exchange-market pressures.
A more flexible currency is especially important now, when inflation risks are rising in China. Increased currency flexibility would allow China’s central bank to use monetary policy to enhance China’s financial and price stability. As Premier Wen Jiabao recently emphasized, China must now undertake comprehensive measures to control mounting inflation, growing asset bubbles, and an overheating economy. We share these concerns.
In the US-China relationship, the RMB exchange rate has become a touchstone for broader anxieties about competition from China. As globalization advances and economies become more tightly integrated, worries about the effects of foreign competition – through trade or through foreign investment – have fueled economic nationalism and protectionist sentiments.
Americans have been through this type of debate before. Twenty years ago, we were gripped by fear that Japan would overtake our economic leadership – a concern that was unfounded then and, in hindsight, looks profoundly mistaken.
America continues to lead the world in standard of living, productivity, and innovation. China’s continued economic growth and integration into the global economy gives America even greater opportunities to grow and succeed. The biggest risk to both US and Chinese prosperity is that China’s growth stalls, or that it pulls back from further global integration and reforms too slowly.
Indeed, economic nationalism is growing in China, too. Some Chinese are suspicious that the US push for RMB appreciation and financial-market liberalization is really an attempt to gain trade advantages and generate profits for American companies while slowing China’s economic expansion. They mistakenly believe that yen appreciation during the mid-1980’s caused Japan’s weak economic performance in the 1990’s. Rather, we now know that Japan’s economic difficulties were caused by the growth, and then collapse, of a huge asset bubble, and the failure to use monetary policy to prevent deflation after the bubble burst.
Financial liberalization is not about foreign firms drilling holes in China’s economy. Foreign participation in the financial sector brings expertise needed to provide more efficient savings instruments, risk management, and allocation of capital. But to use that expertise – the most valuable asset a globally competitive financial institution has – investors need to control the operations of firms in which they have a stake. This is why China’s equity limits for foreign investment in Chinese financial institutions are costly to the Chinese economy, and why raising these limits is important.
There are also those in China who argue that the US focus on food and product safety is part of a strategy to restrict Chinese imports and reduce the bilateral trade deficit. This argument has no basis in fact. Numerous other countries, notably European Union members, share our concerns.
Finally, after welcoming foreign investment, which contributed greatly to Chinese manufacturing growth and export competitiveness, some in China would now tighten restrictions on foreign investment to protect China’s domestic industries. The US faces similar pressures, even though we are one of the world’s most open economies. But neither country can protect its way to prosperity: protectionism harms China’s industrial development and our efforts to build stronger trading relationships.
I am committed to working to maintain economic openness, because it is good for America and for our workers. But, frankly, it will be easier to do this if the American public and the US Congress see that China is serious about reform and expanding access to its markets.
The SED is one valuable tool in combating protectionist sentiments. In this and other bilateral dialogues, the US has demonstrated that we welcome and encourage the rise of a prosperous and stable China. We supported China’s membership in the World Trade Organization, the Inter-American Development Bank and the Financial Action Task Force. We supported a greater voting share for China, and other rapidly growing emerging markets, in the IMF and the World Bank. But China’s government must recognize that, while increased participation allows China to advance its interests, it also brings greater responsibilities.
The agreements we have achieved thus far are like signposts showing progress along the road to mutual economic prosperity. While progress has not been as rapid as we would like, these signposts point the way to further benefits for Americans and Chinese alike. To turn back would jeopardize the long-term strategic interests of both countries for short-term political expediency.
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In recognition of the importance and complexity of the US-China economic relationship, in September 2006 President George W. Bush and President Hu Jintao created the “Strategic Economic Dialogue” between our countries. Their intent was not to replace the many economic dialogues already taking place, but to create a senior-level forum that was both comprehensive and strategic. A forum that would also build trust on both sides by demonstrating progress on the immediate issues we face.
The SED has made substantial progress in achieving these goals. The US and China have built stronger relationships and established constructive channels of communication that didn’t previously exist. These innovations have helped keep the US-China economic relationship on an even keel, even in times of tension. Because we have a framework for high-level discussions, we can – and do – pick up the phone and talk.
The SED meeting next week in Beijing will focus on five areas: integrity of trade and product safety; balanced economic development, including financial sector reform; energy efficiency and security; environmental sustainability; and bilateral investment. The meeting comes at a delicate time, as a new group of leaders moves into China’s senior positions, and as the agenda has been broadened to include food and product safety, energy efficiency and security, and environmental sustainability. These issues carry deep implications for economic ties.
Consumers need to have confidence in the safety of the products they purchase, whether produced at home or abroad. China’s management of food and product safety issues will have a long-term impact on trade relations, the sustainability of China’s growth strategy, and its further integration into the global trading system. US and Chinese government agencies are working together to address these issues.
Likewise, for both our countries, greater energy efficiency and security requires reliance upon market price signals, technology, innovation, and diversified energy sources. The Global Nuclear Energy Partnership, clean coal development through FutureGen, and industrial efficiency audits represent some of the most productive areas of ongoing cooperation.
We also encourage China’s active participation in the Major Economies Meeting efforts to develop a post-2012 framework for greenhouse-gas reduction. I was pleased to see that a large Chinese energy company, Shanghai Electric, recently indicated public support for substantial reductions in greenhouse-gas emissions.
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Access every new PS commentary, our entire On Point suite of subscriber-exclusive content – including Longer Reads, Insider Interviews, Big Picture/Big Question, and Say More – and the full PS archive.
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One pressing issue – for the US, China, and the global economy – is China’s move to a more flexible exchange-rate policy. China is reforming its policy, as a part of a move to a more market-determined exchange rate. In the past year, the RMB has appreciated by 6%, but the pace is not fast enough to reduce China’s global trade surplus, its internal imbalances, or foreign-exchange-market pressures.
A more flexible currency is especially important now, when inflation risks are rising in China. Increased currency flexibility would allow China’s central bank to use monetary policy to enhance China’s financial and price stability. As Premier Wen Jiabao recently emphasized, China must now undertake comprehensive measures to control mounting inflation, growing asset bubbles, and an overheating economy. We share these concerns.
In the US-China relationship, the RMB exchange rate has become a touchstone for broader anxieties about competition from China. As globalization advances and economies become more tightly integrated, worries about the effects of foreign competition – through trade or through foreign investment – have fueled economic nationalism and protectionist sentiments.
Americans have been through this type of debate before. Twenty years ago, we were gripped by fear that Japan would overtake our economic leadership – a concern that was unfounded then and, in hindsight, looks profoundly mistaken.
America continues to lead the world in standard of living, productivity, and innovation. China’s continued economic growth and integration into the global economy gives America even greater opportunities to grow and succeed. The biggest risk to both US and Chinese prosperity is that China’s growth stalls, or that it pulls back from further global integration and reforms too slowly.
Indeed, economic nationalism is growing in China, too. Some Chinese are suspicious that the US push for RMB appreciation and financial-market liberalization is really an attempt to gain trade advantages and generate profits for American companies while slowing China’s economic expansion. They mistakenly believe that yen appreciation during the mid-1980’s caused Japan’s weak economic performance in the 1990’s. Rather, we now know that Japan’s economic difficulties were caused by the growth, and then collapse, of a huge asset bubble, and the failure to use monetary policy to prevent deflation after the bubble burst.
Financial liberalization is not about foreign firms drilling holes in China’s economy. Foreign participation in the financial sector brings expertise needed to provide more efficient savings instruments, risk management, and allocation of capital. But to use that expertise – the most valuable asset a globally competitive financial institution has – investors need to control the operations of firms in which they have a stake. This is why China’s equity limits for foreign investment in Chinese financial institutions are costly to the Chinese economy, and why raising these limits is important.
There are also those in China who argue that the US focus on food and product safety is part of a strategy to restrict Chinese imports and reduce the bilateral trade deficit. This argument has no basis in fact. Numerous other countries, notably European Union members, share our concerns.
Finally, after welcoming foreign investment, which contributed greatly to Chinese manufacturing growth and export competitiveness, some in China would now tighten restrictions on foreign investment to protect China’s domestic industries. The US faces similar pressures, even though we are one of the world’s most open economies. But neither country can protect its way to prosperity: protectionism harms China’s industrial development and our efforts to build stronger trading relationships.
I am committed to working to maintain economic openness, because it is good for America and for our workers. But, frankly, it will be easier to do this if the American public and the US Congress see that China is serious about reform and expanding access to its markets.
The SED is one valuable tool in combating protectionist sentiments. In this and other bilateral dialogues, the US has demonstrated that we welcome and encourage the rise of a prosperous and stable China. We supported China’s membership in the World Trade Organization, the Inter-American Development Bank and the Financial Action Task Force. We supported a greater voting share for China, and other rapidly growing emerging markets, in the IMF and the World Bank. But China’s government must recognize that, while increased participation allows China to advance its interests, it also brings greater responsibilities.
The agreements we have achieved thus far are like signposts showing progress along the road to mutual economic prosperity. While progress has not been as rapid as we would like, these signposts point the way to further benefits for Americans and Chinese alike. To turn back would jeopardize the long-term strategic interests of both countries for short-term political expediency.