U.S., China Pledge to Address Finance, Regulatory, Trade Issues
May 9 (Bloomberg) -- U.S. Treasury Secretary Timothy F. Geithner and Chinese Vice Premier Wang Qishan pledged today to tackle financial, regulatory and trade conflicts between the world’s two biggest economies.
At the start of the two-day Strategic and Economic Dialogue, Geithner said China has been making progress “towards a more flexible exchange rate” and weaning its economy off a dependence on exports. He also called for China to overhaul its financial system and said the U.S. will work to improve its fiscal outlook.
Top-ranking officials from the two nations meet in Washington amid ongoing U.S. pressure for China to allow the yuan to rise against the dollar and to tackle inflation by raising interest rates. Chinese leaders, in turn, have expressed concern about U.S. budget deficits and spillover effects from the Federal Reserve’s purchases of Treasury securities to stimulate the economy.
Wang said the U.S. and China should share information on economic and financial trends. He said the U.S. economy has “showed improving trends” and that China’s economy is “sound overall,” even as more work remains to be done.
“Our economies face new challenges and deep-seated problems,” Wang said. Earlier, in his opening remarks, Wang said there were “clashes” between Chinese and U.S. economic policies while “we have far more shared interests and cooperation than differences and competition.”
The yuan was little changed at 6.4939 per dollar as of the 4:30 p.m. close in Shanghai, according to the China Foreign Exchange Trade System. The currency touched 6.4892 on April 29, the strongest level since 1993.
Domestic Demand
As the talks opened, Geithner said relations between the U.S. and China are important to the health and stability of the world economy. He reiterated that China needs to shift its economy toward domestic demand while the U.S. focuses on repairing its labor market and financial system.
“The reforms we must both pursue to meet these very different challenges are not in conflict, and the strengths of our economies are still largely complementary,” the Treasury chief said.
Geithner and Wang met alongside Secretary of State Hillary Clinton and State Councilor Dai Bingguo at this week’s meetings. Clinton said the talks would include U.S. concerns about human rights and said that each nation benefits from a “thriving” economy in the other.
‘Rebalancing’ Relationship
Senators Charles Schumer of New York and Jeff Merkley of Oregon called May 6 for a “rebalancing” in the U.S.-China economic relationship. The two lawmakers, who just returned from a trip to China, said the Chinese need to open their financial sector, address “abnormally low deposit and lending rates” and allow broader market access to foreign firms.
Chinese production and U.S. consumption shouldn’t be such dominating themes, the two Democrats said. “This situation is not sustainable and harms nearly all involved,” they wrote in a letter to Geithner.
Heading into this week’s meetings, Treasury officials said they will urge China to allow higher interest rates as part of economic adjustments. China also should relax controls on the financial system and give foreign banks and insurers more access, said David Loevinger, the Treasury Department’s senior coordinator for China, to reporters in Washington last week.
China has raised interest rates four times since mid- October and lenders’ reserve requirement seven times. The benchmark one-year lending rate increased 0.25 percentage point to 6.31 percent on April 5. The one-year deposit rate stands at 3.25 percent.
Inflation Forecast
The median forecast of 30 economists surveyed by Bloomberg News is for an annual inflation rate in April of 5.2 percent, down from 5.4 percent in March.
Vice Finance Minister Zhu Guangyao said on May 6 that China is paying “close attention” to U.S. efforts to reduce its budget deficit, and his country will focus on improving the quality of its exchange-rate mechanism.
China held $1.15 trillion in Treasuries at the end of February, more than any other country. The U.S. trade deficit with China came to $18.8 billion in February.
China says a loose monetary policy in the U.S. has helped lower the value of the dollar, stoking global inflation in food and energy. A commentary today by the official Xinhua News Agency said the “plunging” dollar “has become the source of many current global economic problems.”
U.S. Stance
The Obama administration and U.S. lawmakers have maintained that China’s currency policy gives the nation’s exporters an unfair competitive advantage, costing American jobs. Geithner is trying to convince Chinese officials that a stronger yuan has benefits for their economy.
Geithner said last week that allowing the yuan to rise and making the financial system less dependent on government- controlled interest rates would give Chinese leaders an “enhanced” ability to damp inflation.
John Frisbie, president of the U.S.-China Business Council, said support for a stronger yuan among Chinese leaders has increased in the past year.
“The strong hand has switched over to those who are saying that the exchange rate can help us fight inflation,” Frisbie said in a telephone interview. He said his group, whose members include companies such as Apple Inc., JPMorgan Chase & Co. and Coca-Cola Co., wants China to resume opening its financial services sector to allow more foreign investment.
--With assistance from Flavia Krause-Jackson and Ian Katz in Washington and Michael Forsythe in Beijing. Editors: Kevin Costelloe, Carlos Torres
To contact the reporters on this story: Rebecca Christie in Washington at rchristie4@bloomberg.net; Ian Katz in Washington at ikatz2@bloomberg.net
To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net
www.businessweek.com/news/2011-05-09/...tory-trade-issues.html