Paulson Remarks on 4th Round of U.S.-China Strategic Economic Dialogue

Wednesday, June 11, 2008 10:23
Posted in category The Big Picture
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With the 4th round of the SED looming, much has been made about what to really expect from this – the last/ 2nd to last round under Bush and Co. – of the US China Strategic Economic Dialog. Many feel that while there are real issues to be resolved, it will be hard as the Bush administration is now in official wrap-up.

From the viewpoint of Secretary Paulson though, there is a lot that needs to get accomplished, and while speaking at the Carnegie Endowment he outlined the 5 areas that he feels are going to make up the core of the meetings:

managing financial and macroeconomic cycles; developing human capital; the benefits of trade and open markets; enhancing investment; and advancing joint opportunities for cooperation in energy and the environment..

There are some areas that concern me – the continued focus on RMB (is US inflation not high enough) and a questionable idea that somehow the Chinese are saving too much money – that they should become rampant consumers like their bankrupted American peers:

A major contributor to the structural imbalances is a saving rate challenge in each of our economies. In the United States our saving rate is too low. In China it is too high. In order to effectively deal with this issue, we must address how to adequately provide for our aging populations, including the role of private and public insurance and financing for social services such as health care and retirement.

while I agree that China’s structure issue is a degrading safety net, and that results in a high savings rate, that is not an issue that is structurally more problematic than the average Joe in the US just being fiscally irresponsible with their money. It is apples to oranges, and this is an issue that really should be addresses as a US domestic issue.

Another area where I think Paulson is a bit off:

America’s policy of open investment is one of our predominant economic strengths. Foreign direct investment stimulates competitiveness, growth, jobs and productivity. At the fourth round of the SED, we will discuss the best way to promote and protect bilateral investment and counter protectionist pressures. We will also discuss the concerns of American companies that China’s investment regulations are opaque and seem in many ways to be designed to favor China’s “national champions.”

Sure, America is open to investment – but politically speaking there are countries that have found investing in the US to be much easier than China has… and as far as investment regulations being opaque – and the reformation of those regulations – I find it interesting that some 70 billion in FDI is making it into China on a yearly basis (not including the 40 billion in hot money), yet the rules are somehow opaque (sorry.. ranting again).

Where I agree with the Secretary is that through these dialogues progress has been made, and I think overall the relationship between both countries is stronger for it. Focusing on ways both countries can use energy more responsibly, and work together on the environment are key issues for both sides as both the US and China are large players in the problems surrounding those issues.

There is a lot to be done, and it will surely take the time of the next administration to work through some of the issues. Paulson I think has done a great job overall (especially considering all the pressure he has be given), however, I think it is time for the politicians (and their appointed) in the US to start providing the public with a better picture of what is really wrong in China, and where the improvements need to be made.

Next week, it is game time, and I hope that you will watch the talks closely…. cause no matter what happens, the next President f the United States will be reviewing these talks as part of working out their China playbook.

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