A Broad Dialogue With China

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By Henry M. Paulson
Monday, December 11, 2006

My highest priority as Treasury secretary is the long-term strength and competitiveness of the U.S. economy. Managing our economic relationship with China to ensure both nations benefit is vital to our nation's future prosperity. A market-based economy in China, with sustainable economic growth and full participation in rules-based international trade, is in our best interest -- and in the interest of the Chinese people.

Since 1980 China's share of the world economy has more than quadrupled. The United States and China now account for almost half of global economic growth. And bilateral trade between our two nations grew by a factor of five over the past decade. Beyond the numbers, the U.S.-China economic relationship epitomizes both the opportunities and challenges of globalization.

This week a delegation made up of U.S. Cabinet secretaries, agency directors and the Federal Reserve chairman, Ben Bernanke, will participate in the first meeting of our new Strategic Economic Dialogue with China.

Presidents Bush and Hu Jintao launched the dialogue in September to focus on China's successful integration into the global economy and ensure that China continues on its market-based reform path.

My colleagues and I will meet with Chinese leaders in Beijing for discussions in three areas: maintaining sustainable growth without large trade imbalances; continuing to open markets to trade, competition and investment; and improving energy security and the environment.

China is at a crucial juncture. Decisions it makes in the next few years will have long-lasting effects around the world. The United States and China each have a vision of how our relationship will evolve, and in many respects our visions are similar.

We both want strong commercial ties that produce benefits for workers and consumers in America and China. We both want China to grow in a way that is sustainable economically and environmentally and that contributes to global prosperity. We both want China to be a responsible stakeholder in the global economy and in multilateral institutions.

We do have our differences. The United States believes China can do more to reduce its trade surplus. We are encouraging China to introduce greater flexibility for its currency, consistent with economic fundamentals. And China needs to do more to protect intellectual property rights.

Our goal is to advance our common interests and find solutions to issues that strain our relationship. The United States and China are engaged in dozens of bilateral negotiations at multiple levels. This has produced positive outcomes, but it can be difficult to address issues that cut across numerous sectors and areas of responsibility. The dialogue will allow us to meet with several Chinese leaders at once and begin to address important issues comprehensively.

For instance, transparency and respect for the rule of law are core principles that affect all economic policy and trade issues. Commitments to these principles are essential to China's maintaining the confidence of international businesses and of its own investors and entrepreneurs. Working on these principles across government ministries can enhance our ability to reach agreement on a number of key issues that we negotiate ministry-by-ministry.

One of the most important topics for discussion is how to help China manage its transition to freer, more open markets, including capital markets. Every strong, vibrant economy in the world has open, competitive capital markets that attract investment and allocate resources to their most productive uses. Such markets will contribute to sustained economic growth and boost job creation in China. And strengthening and reforming financial markets will ultimately allow the Chinese to freely float their currency.

The Chinese government is committed to creation of a social safety net, including health and retirement programs that will contribute to balanced growth by giving Chinese workers and families the confidence to spend more.

China's high saving rate is a major contributor to the country's large global trade surplus. Increasing consumption in China will benefit U.S. and other exporters.

Energy is an issue with far-reaching effects. Both the pattern of China's growth -- with its heavy dependence on industry -- and low domestic prices for energy have led to rapidly increasing energy use by China. Unfortunately, because of technological and infrastructure challenges, much of that energy is produced from sources that generate high levels of pollution. This harms the air and water we all share, and creates health problems for Chinese citizens.

Through the Strategic Economic Dialogue, we can work with China's leaders to help it achieve more environmentally and economically sound growth and constructive engagement with the global energy market.

This is a pivotal moment for China and for our relationship with that country. By engaging Chinese leaders with an eye to producing long-term benefits for our two nations, we can build a productive and prosperous partnership for the 21st century.

The writer is secretary of the Treasury.


© 2006 The Washington Post Company

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