U.S. Committed to Growing China Trade Relationship
Snow Says U.S. Committed to Growing China Trade Relationship
Treasury secretary's Sept. 3 remarks in Beijing
The United States "is committed to a growing, healthy and mutually beneficial trade relationship with China," says U.S. Treasury Secretary John W. Snow.
At a press roundtable in Beijing September 3, Snow said he was satisfied with his recent round of talks with his Chinese counterpart and colleagues on economic, financial and trade issues. He added that in order to continue the dialogue, he has extended an "open invitation" to Vice-Premier Huang Ju and other Chinese officials to come to Washington "to continue the work on these important matters."
Snow also outlined for the press continuing U.S. concerns about the Chinese economy. He said, for example, the United States would like to see further progress with regard to the Chinese government's relaxation of ownership rules for financial services.
Snow said the establishment of a flexible exchange rate regime for the Chinese yuan would benefit both the United States and China, as well as their regional and global trading partners.
"Market-determined floating currencies are really the key to a well- functioning international financial system, he continued.
Snow said he had been encouraged during his meetings this week by the views expressed by China's economic leaders on the need for currency flexibility. "In the course of those discussions I was repeatedly assured that interim steps are now being taken and progress in this area will continue," he said.
The enforcement of China's intellectual property laws and the protection of the free flow of capital, the Treasury secretary said, are also areas of U.S. concern.
Snow noted that the United States would appoint a Treasury Attaché at the U.S. Embassy in Beijing to further enhance the U.S.-China economic relationship
Following is a transcript of Snow's September 3 remarks:
Treasury Secretary John W. Snow
September 3, 2003
SNOW: Thank you very much Mr. Ambassador. Thank you very much for all your kindness and hospitality during our visit. The ambassador and I have been spending a great deal of time together, as we have called upon the economic and political leaders of your great country.
Let me say that we have had a series of very good meetings, very important meetings and, to me, very encouraging meetings. So, let me begin by thanking my hosts for inviting me to Beijing - me and my colleagues from the Treasury Department - to discuss issues of mutual interest to our two countries. I've been to China many times in the past in a private capacity, as a businessman. This is my first opportunity to be here in my new capacity as a representative of the United States government. I want to state how much I appreciate the hospitality and the warmth and the friendship that has been extended to us, to me and to the Treasury delegation, throughout the course of our discussions. I am honored this afternoon to have the opportunity to continue those discussions with the premier, with Premier Wen. In all of these discussions I have found the Chinese leaders open, frank and encouraging of the close ties and the close working relationship between our two countries.
Early last year when President Bush visited China and met with President Jiang Zemin, President Bush said, and I want to quote him here because I think his quote sets the foundation for this relationship. He said, "China and the United States, both with significant influence in the world, should step up dialogue and cooperation, properly handle their differences, and work together to move the constructive and cooperative relations between us further forward." Our talks this week are fully in keeping with the spirit of President Bush's comments.
One thing is clear and that is economic engagement and extending the engagement between the United States and China will promote prosperity in both of our countries and, in addition, for all of our trading partners. Our trade with you makes your economy stronger. Your trade with us makes our economy stronger. As our economies are stronger, benefits are extended to the rest of our trading partners. So just as China benefits from our market, U.S. businesses and consumers should benefit from China's growth. Clearly, investments and technology from the United States help to sustain high growth in China.
In recent years, China has made historic strides in reforming its economy and moving to a market-based system. We applaud that and urge continued progress.
It's been our view for some time that the best international economic system, the best for China, and the best for the United States, and the best for the whole trading world is one based on the principle of free trade, open markets, free capital flows, and market-based exchange rates, among the major economies. China is now clearly one of the major economies of the world. It's with these principles in mind, these ideas in mind, that I am here to discuss our economic relationship with the Chinese leaders and to encourage China to continue to take advantage of its strong growth to accelerate progress in all of these areas. The growth which China has enjoyed makes it easier to move further in the direction of open markets and floating exchange rates and free capital flows and to advance these ideas within the economy of China for the benefit of the Chinese people.
It's important to recognize that the United States is committed to a growing, healthy and mutually beneficial trade relationship with China. In that regard, it's very important that China continue its efforts to fully implement the commitments it made to the World Trade Organization.
Progress on market opening should be made for products such as soybeans, which is important to the United States, of course, but important to the citizens of China as well. We also encourage further relaxation of the ownership rules in the area of financial services.
Another area of concern for me is that U.S. companies continue to lose billions of dollars because of the piracy of intellectual property. Enforcement of the good intellectual property laws which China has put in place is essential to our continued economic relationship.
Another area that is important is the free flow of capital. The free flow of capital is a fundamental component of our global system of international trade and international finance. While I applaud and welcome the recent policy changes that allow for greater capital mobility, it's in China's interest to accelerate these efforts. For example, it would be beneficial to expand the qualified institutional investor programs, to increase both portfolio inflows and portfolio outflows. It would also be advantageous to liberalize the long-term debt transactions, and overall to create open capital markets. As we talked to the Chinese economic leaders we emphasized over and over the necessity to develop open capital markets. They really are the key to the success of a market-based economy.
Finally, let me turn to the subject of exchange rates, because the subject of exchange rates has also been much in discussion among us. The establishment of flexible exchange rates, of a flexible exchange rate regime, would benefit both our nations as well as our regional and global trading partners. Market-determined floating currencies are really the key to a well-functioning international financial system.
For the world's major traders, only freely floating currencies bring the accuracy and the efficiency necessary for the proper pricing account settlement in capital flows. That's really our central point, that floating rates, market-based, flexible exchanges create the signals for a well-functioning flow of resources on a global basis. There's ultimately no substitute for that.
We've learned over the years that rigidities of all kinds, including rigidities in exchange rate mechanisms, tend to distort the proper functioning of markets. Open competitive markets with little or no interference are essential. They are really needed to insure that people and investment capital can seek out the best ideas and opportunities.
How do economies grow? How do they prosper? They grow and prosper by bringing people with ideas together with people with capital. Then, seeing those ideas flower in the marketplace, with new products and new services. That's the engine of growth, and it requires the availability of capital and it requires markets that make capital available to those entrepreneurs and businesses that generate the ideas and will employ people and bring people and capital together.
So progress on each of these issues, in our view, will yield long-term benefits for the peoples of China, the peoples of the United States and the peoples of the world. This is clearly a win-win situation for China and the United States; a win-win situation brought about by embracing these ideas of open markets, capital flows, floating exchange rates.
During my meetings this week I expressed these views with the Chinese economic leaders. On the need for currency flexibility, in particular, I was encouraged. I was encouraged to hear the reaffirmation of China's longstanding goal to move toward greater flexibility. In the course of those discussions I was repeatedly assured that interim steps are now being taken and progress in this area will continue.
In order to continue this dialogue, in order to further communications and understanding between our nations on this issue and other important economic, financial and trade issues, I yesterday extended an open invitation to host the Vice-Premier, Huang Ju, and other officials to come to Washington to continue the work on these important matters.
We also intend to appoint a Treasury Attaché at the U.S. Embassy in Beijing where the Ambassador tells me that that Treasury person will be well cared for, and looked after, and will an important part of the Ambassador's team. Let me conclude by saying that I look forward to our continued discussions as we cooperate to enhance our economic relationship.
So I thank you very much and now look forward to your questions:
QUESTION: When you talk about these interim measures on the currency, what measures specifically are you talking about, and what concretely do you expect to leave here with?
SNOW: Well, we have in mind things like expanding the opportunities for capital flows, expanding the opportunities for ownership of financial assets. We have in mind things that are underway already, being expanded and accelerated, removing some of the burdensome capital requirements in the banking system, capital asset ratio requirements; and ownership rules, relaxation of ownership rules; a variety of things in this area.
QUESTION: On currency though, specifically? Interim measures?
SNOW: Right, well these are interim measures that prepare the economy for a floating exchange rate system, that get it ready for a floating-exchange system. That was the nature of a lot of our dialogue, the interim steps, putting in place the interim steps that prepare the way for an effective floating regime.
QUESTION: Do you have a timetable for these interim measures?
SNOW: Well they're underway right now, and we're pleased to see them underway. We want to see them accelerate. Our conversation yesterday with the economic leaders indicated that more is coming, and we urged that on, we urged them on with doing more.
QUESTION: And could you tell us were the Chinese receptive to your ideas, I mean the incentives for them to adopt these moves?
SNOW: The incentives are their own advantage. It's in China's advantage to open its system up. It's in China's advantage to encourage greater flows both in and out. It's in China's interest to secure a more market-based set of financial institutions. And, as China moves down this path, it prepares the way to move to floating rates. That was the essence; that was an important part of our discussion yesterday.
QUESTION: Could I ask you to be a little specific about this? Was it in essence these interim measures attempted to rebalance the demand between the renminbi and the dollar? Specifically was it to allow more Chinese companies to invest in U.S. Treasuries, and do they also mention allowing domestic Chinese companies or funds to invest in stock markets abroad?
SNOW: Yes. It's not. No further actions need to be taken to allow foreign investment in the United States bond market. It's an open market, so any restrictions would be local restrictions not U.S. restrictions of course. But we had that discussion of opening up opportunities for investments going both ways, in both the financial arena and in the non-financial arena.
QUESTION: I'd like to ask a question about the trade relations between the two sides. The American trade deficit with China has attracted much attention from your side for a long time. As we know, with the development of trade liberalization and economic globalization, I think that it's not so important to just talk about bilateral trade surplus or deficit. For example, China has several thousand billion dollar U.S. trade surplus with the United States, but she also has an approximately forty billion U.S. dollar trade deficit with the other Asian countries like Japan and Malaysia and the Republic of Korea. And this offsets the surplus with the U.S. At the same time, China has a trade surplus with the United States. She also purchases a large amount of American debt, which offer a great support to the American economy. So can we say that the trade relations between the U.S. and China are not only just bilateral trade relations, but are also multiparty and mutually beneficial relations on the global trading system? What we should do is to develop this win-win or multi-win trade relations. Do you agree with that?
SNOW: I'm not sure I fully understand the question, but let me try and respond as best I do understand it. The United States and China have a good trade relationship. We benefit from the opportunity to have low-cost goods from China in the United States and you benefit from the opportunity to take advantage of U.S. exports. We'd like to see that trade deficit narrowed though. I think it's unsustainably large at current levels. One way for it to narrow is for the domestic economy of China to strengthen. Because as it strengthens, then with more disposable income in China, there will be an increase in the propensity to buy U.S. goods, and that would be healthy. So we are urging the Chinese officials to continue with their reform strategies, because those reform strategies, if persisted in, if continued, will clearly create a stronger domestic economy. That's in China's interest and it's very much in the U.S. interest as well. We're interested in selling more products and services in China. China will benefit from that, just as you benefit from access to our markets.
QUESTION: I take it from your choice of language that you would say that China is not at this moment ready for a free floating currency. Am I correct in that assumption, and if they're not ready now, what specifically do they have to do? How long will it take?
SNOW: Well, the objective here is to get a commitment to move to a free-floating currency. That's what we want. We'd like to see China operating in a regime of market-based, floating, flexible exchange rates. And as I said in my comments, I was encouraged to see the Chinese officials reaffirm that objective, that policy goal. I was also pleased to see them making strides on the interim steps that have to be put in place. I don't think it's helpful for us to try to talk about a timetable. I do think it's helpful though to see that reaffirmation of the policy direction, and to see the progress that's being made in the commitment to further progress on these interim steps.
QUESTION: Mr. Secretary could you tell us if you discussed at all any specific sectors of trade, U.S. sectors of trade, textiles, furniture, or shoes or any of the other sectors where there's been some political pressure in the Unites States to do something about China trade? Did any of your Chinese hosts discuss any specific measures that they might take to address any concerns in those specific sectors?
SNOW: Well our discussions were more general I would say than sector-specific, although the financial sector did receive a good deal of specific attention, because a focal point of our conversations was moving towards flexibility in exchange rates. It's the freeing up and opening up of the financial sector which is part and parcel of moving to fluctuating rates. But we did talk generally about opening up markets in other areas, about the intellectual property rights and better enforcement there; about making the market more open for soybeans; and, as I say, financial services; and agriculture in general. So there was a general discussion of other areas and a more specific discussion of financial services.
QUESTION: The National Association of Manufacturers says that China maintains an artificially low exchange rate that is the single biggest factor in manufacturing job loss in the U.S. and I'm wondering if you consider the Yuan undervalued. If so by how much? And what relationship does that have to the loss of jobs in the U.S.?
SNOW: What we're seeking is broad movement to flexibility so that markets can be allowed to set values. We're placing our confidence in markets. The only way ultimately to know the answer is to place your confidence in markets. Therefore I'm encouraged by what I heard. We want to make sure that you use markets so that there isn't any artificial propping up of one sector or another, so the U.S. manufacturers will have a fair opportunity to compete on a level playing field.
QUESTION: I would like to ask: you are going to have a meeting with Premier Wen Jiabao this afternoon. What are the topics that you are especially interested in during your meeting with the Premier?
SNOW: It'll be a continuation of the subjects we've reviewed here. I will commend the Premier on the enormous progress that 's being made in this economy. I will commend him on the reforms that are underway. I will reaffirm the importance of this relationship. I will let him know that we want to see a win-win relationship between China and the United States. I will tell him that we have an enormous amount to gain together, working together. I will urge him on with the reforms and indicate specifically our interest in seeing a movement to more open capital flows; applauding China's WTO commitment, open banking and insurance markets, to foreign services; indicate that some problems remain. We'd like to see continuing progress in this area. I'll suggest to him that it's in China's interest to adopt flexible, risk-based capital requirements for the banking sector. I will indicate our interest in seeing China move forward and honor the commitments it's made to allowing branching by non-life insurance companies, financial services companies. I will urge, as well, continued progress on securities and asset-management, including importantly allowing a majority ownership by foreign firms.
We see more robust capital markets, more market-based capital markets as an essential component of the China of the future. In saying that, our position is it's in China's interest to move in that direction. I will suggest to him our interest in seeing China move towards a floating rate, a flexible regime of international currencies.
In addition, at some point our conversation will turn to terrorist finance, and I will commend the Premier for China's cooperation in dealing with the threat of terrorist finance. The United States, with China and other nations of the civilized world, are committed to dealing with the terrorist threat. An important component of dealing with terrorism is dealing with terrorist finance. I want to reaffirm our mutual commitments to do that. And of course I will thank the Premier on behalf of the President for the leadership China is showing in dealing with the threat of nuclear arms on the Korean Peninsula.
QUESTION: I have two questions. One is: many analysts blame this round of the Japanese economic recession on the Plaza Accord 1985. I want to know: do you agree with that? Meanwhile I would like to know your opinion on how the foreign exchange rate influence could be used to resolve the trade deficit.
SNOW: Fluctuating exchange rates, if they're really used, provide a mechanism for the adjustments that need to be made so that imbalances aren't sustained in the world economy. That's really why we want to use flexible exchange rates. If a country has a surplus, and it goes on for quite a while, the fluctuating exchange rate mechanism will provide for an adjustment process as currencies change values. If a country is in long-term deficit, the exchange rate mechanism will provide for an adjustment of currencies which will correct it. The virtue of fluctuating rates is that the price signals are working to create a healthy and efficient, continuous adjustment process. Where fluctuating rates, market-based rates, are impeded, imbalances develop in individual economies and they develop in the world trading system. So the world trading system is more efficient. It works better. It works better under a regime of fluctuating exchange rates. So that's why we will be urging the authorities to move in that direction, and to take the steps that prepare the way for the implementation of a fluctuating, market-based regime of currencies.
I thank you very much for this opportunity to be with you and respond to your questions.