Secretary Paulson on China

By September 14, 2006Trade

Treasury Secretary Hank Paulson made some news yesterday with a broad speech on China. The Secretary, who’s made some 70 trips there when he was in the private sector, is a bit of a China hand. It is a very thoughtful speech, form one with a clear appreciation of the place and of the nuances of the global trading system.

On currency, he said this:

“China faces several critical, immediate challenges. The first is the pressing need to put in place widely-accepted, market-based tools to keep its economy from veering out of control. A much more flexible, market-driven exchange rate along with a more nimble, self-determined monetary policy are key ingredients to stable and sustainable, non-inflationary growth.

Accordingly, maintaining and relying on an overly rigid exchange rate and outdated administrative controls increases the risk of boom and bust cycles. Also, to be under estimated only at China’s own peril, is the fact that their currency exchange rate is increasingly being viewed by their critics as a symbol of unfair competition.”

We continue to think currency values should be set by the market, not by individual governments. Hopefully Secretary Paulson will impress upon the Chinese on his upcoming trip the importance of letting their currency begin to float a little more freely.

On an equally important issue — intellectual property protection — eh had this to say:

“Another pressing issue is greater protection for intellectual property rights. China cannot achieve its goal of being a modern economy if it fails to adhere to the rule of law and fair trade and encourage the innovation that is the engine of growth for developed — and developing — economies.

Moreover, U.S. businesses lost billions of dollars in sales last year due to the illegal acquisition and use of their copyrighted ideas and products in China.”

The Secretary is headed there in a week or so, to return in time to address the NAM Board Meeting the last week in September here in Washington. We’re all looking forward to that. “When I visit China in the coming days,” Said Paulson, “I will discuss these issues with the Chinese leadership, and I will use a Chinese saying indicating that it is for the good of both of our economies that they undertake these changes, for our economic fortunes are interconnected.”

We are indeed interconnected through the global trading system. China is at once our biggest competitor and our biggest market. The challenge is to bring them into the world trading system and to manage their development in a way that enables all nations to prosper.

Here’s a link to the full speech — a must-read for anyone who is interested in these issues. And here’s a link to the section of our site that deals with currency issues.