Ahead of his trip to China, Treasury Secretary Hank Paulson gave his first major speech in which he called for a .
Mr Paulson declared “the United States has a huge stake in a prosperous stable China – a China able and willing to play its part as a global economic leader.”
The US and China share huge areas of mutual economic interest, and highlighted energy and the environment as two specific issues where the two countries should work together.
“The biggest risk we face is not that China will overtake the US but that China will not move ahead with the reforms necessary to sustain its growth,” he said.
The speech implicitly downgrades the importance of the Chinese exchange rate as a stand-alone issue, setting it instead as part of a necessary shift towards more market-based economic management.
However, Mr Paulson warned Beijing “the level of anti-trade and anti-China sentiment in the US is also significant and growing.”
He told the Chinese authorities that they underestimated “at China’s own peril” the extent to which the currency issue was “viewed by their critics as a symbol of unfair competition.”
He called on China to press ahead with liberalisation across a broad front, including financial sector reform, fiscal and regulatory policies to reduce excess savings, currency liberalisation and enhanced protection for intellectual property rights.
We’ll see how the Chinese respond.
