WCA September 2008

Statue of Liberty Image from BigStockPhoto.com Photographer: Marty

The US and China

The Chinese are very decidedly displeased with America’s subprime mortgage crisis “The United States and China don’t always agree on economic issues,” Treasury Secretary Henry M Paulson Jnr said in prepared remarks, 17 th June at the United States Naval Academy, in Annapolis, Maryland. “Sometimes we may even disagree quite strongly. But we keep talking.” The occasion was the opening of two days of intensive economic talks between the US and China on a range of thorny issues, notably trade and investment. Mr Paulson’s depiction of the two countries as earnest seekers after harmony was another rendition of the US mantra that, despite tensions, ties between the two countries are “growing in a positive direction.” Going in, there were some encouraging signs. Since mid-2005, China has allowed its currency, the Yuan, to appreciate nearly 20%, satisfying in some degree a longstanding US demand. And the “strategic economic dialogue” between the two countries, known as the SED, has been judged at least a qualified success, having prompted China to institute limited reforms in its economy and to take limited steps toward the opening of its huge market to American goods and investment. Alas, Mr Paulson’s grace note faded rather quickly before some crisp remarks from the Chinese side on the lessons of the current global financial crisis. Damning with faint praise, Zhou Xiaochuan, minister of the Peoples Bank of China, the central bank, said he was impressed that many shaky American financial companies had increased their capitalisation in recent months, as both Mr Paulson and Ben S Bernanke, chairman of the Federal Reserve, had urged on them. Mr Zhou said pointedly that this was the first time since the last such meeting in 2006 that China needed to learn from America’s mistakes as well as its successes. Mr Zhou also said that the session featuring a presentation by Mr Bernanke was “something we have never experienced before,” in that discussion centred on the “inadequacy of [US] regulations” governing subprime mortgages and other complex financial products. For its part, the American team at Annapolis asserted that it would be wrong for China to use the subprime mortgage crisis in the US as an excuse to slow deregulation of its own financial markets or to modulate its already measured welcome to foreign investment. Alan F Holmer, special envoy for China under Secretary Paulson, led the American side in the talks. He acknowledged that there were “lessons to be learned from the economic developments in the US,” but he also cautioned about “significant costs to China if they were to slow down with respect to their financial sector liberalisation.” Mr Zhou also charged that the declining value of the US dollar in relation to other currencies, including the Yuan, was contributing to rising prices for oil, food, and other

27

Wire & Cable ASIA – September/October 2008