The Obama administration has been taking an increasingly hard line with the Chinese over what it argues are an array of subsidies that China offers to its companies that makes it virtually impossible for many U.S. firms to compete.
These subsidies, many economists say, generated the type of imbalances that led the Chinese to save trillions of dollars. This savings glut helped keep interest rates down, contributing to the debt bubble in the United States that helped create the financial crisis.
At a time of great political transition in China, the U.S. official said the Americans were pleased by the amount of progress achieved. But, the official added, China has a ways to go — including doing more to allow its currency to appreciate against the dollar, making U.S. exports more competitive; providing legal protections for intellectual property; and opening up its system to market-based forces.
Still, the U.S. official said the new actions agreed to by the Chinese represent a welcome step in the right direction.
China has agreed to join a new international agreement to limit the credit subsidies that countries give their exporters.
The United States and many other countries already have agreed to limit these subsidies through the Organization for Economic Cooperation and Development, but China has refused to take part, offering cheap loans to foreign companies seeking to buy Chinese products.
The new agreement will be based on the template of the current OECD rules, the U.S. official said.
The official said China has also agreed to reevaluate the benefits given to state-owned companies, which are able to borrow money at below-market rates and have paid less in taxes than private companies.
As a result, they have generated huge profits, which have remained in corporate treasuries, helping to fuel imbalances.
In addition to reassessing the credit and tax advantages given to state-owned firms, China will consider forcing these companies to increase their dividends to levels paid by private companies.
The other major area of progress, according to the U.S. official, is China’s agreement to open up its financial markets. Foreign firms will be able to invest more in Chinese companies and financial firms.