|
Re: [Mod] Chinese Trade Surplus with US : Treasury Response
[In reply to]
|
Can't Post
|
|
Subcommittee on Trade Hearing on Legislation Related to Trade with China
hairman Levin, Representative Herger, and members of the Sub-committee on Trade, thank you for the opportunity to appear before the subcommittee to speak to you on our views on legislation related to international currency issues.
The Congress is currently considering legislation to counter perceived unfair currency practices. While the bills are wide-ranging, many focus on the concept of "fundamental misalignment" against the background of very legitimate concerns over China's exchange rate management. Let me share with you our perspectives on these proposals and their implications for U.S. international monetary policy.
Engagement with China
Secretary Paulson is engaging China forcefully through the Strategic Economic Dialogue (SED). He frequently observes that, given China's economic size and importance, ensuring a productive U.S.-Chinese relationship is essential to managing the challenges of the 21st Century.
Last night, Secretary Paulson returned from a trip to China, where he saw President Hu and China's financial officials. He conveyed a strong message about the need for far more vigorous action by China to correct the undervaluation of the renminbi (RMB), take immediate action to lift the RMB's value, and achieve far greater currency flexibility.
Our discussions with China in the SED focus on the imperative for China to rebalance its economy away from exports and investment toward more consumption, to promote better balanced and more sustainable growth and to reduce the country's enormous and excessive external surpluses. A more effective monetary policy, made possible by greater currency flexibility, is also key. It would enable China to better control domestic inflation, dampen swings in the investment cycle, liberalize interest rates and improve credit allocation.
In contrast, heavy foreign exchange market intervention by China's central bank to manage the currency is leading to excess reserve accumulation and rapid increases in domestic liquidity. This heightens the risk of overheating, a build-up of non-performing loans leading to further banking sector stress, and asset bubbles. RMB undervaluation encourages production of exports at the expense of domestic consumption of goods and services. These trends increase the risk of a renewed boom-bust cycle, which would significantly harm first and foremost China, but also the world economy. Chinese currency adjustment is a matter of international responsibility, with significant implications for the smooth functioning of the international monetary and trading systems.
RMB appreciation also would to some extent reduce the U.S. bilateral trade deficit with China. But Chinese and U.S. global imbalances are rooted in the structures of our economies. That is why the SED process is focused not only on increasing currency flexibility but also more broadly on the overall rebalancing of the sources of growth of the Chinese economy.
While we are not satisfied with the pace of change in China, there has been important progress. China's currency is no longer fixed; it has appreciated by nearly 10 percent against the dollar in the last two years and the rate of appreciation has accelerated lately. China also is taking steps to reform its financial sector and to improve market access for U.S. and other foreign firms. Yet, there is still a long way to go.
We must continue to work hard for greater progress in our engagement. We appreciate the frustrations of Congress with the slow pace of Chinese reform. Indeed, we strongly share those frustrations. Yet, we continue to believe that direct, robust engagement with China is the best means of achieving progress. We do not believe that legislation would strengthen the United States' hand in achieving the goal, which the Administration and Congress share, of promoting faster Chinese economic reform. Indeed, we believe legislation would be counterproductive and could lead to unintended adverse consequences.
more here: http://www.treas.gov/press/releases/hp523.htm
|
econmod
Broker
/ Moderator
Aug 2, 2007, 11:53 AM
Post #2 of 2
(751 views)
|
