Author: Fran Wang
Posted on: Caixin Global, March 18th, 2017
China and the U.S. should strengthen their economic ties to bolster “the most critical relationship in the world,” said former U.S. Treasury secretary Henry Paulson, who called on the two countries’ presidents to hit “reset” in their anticipated meeting.
“We need to thicken the economic relationship… because there is going to be more and more tension in security issues and others in the world,” Paulson said Saturday at the China Development Forum in Beijing.
Paulson advised Beijing to establish “a positive momentum” in its dealings with the Trump administration, building on common interests such as on economic ties.
“I believe the U.S.-China relationship is the most critical relationship there is in the world today,” he said. “To keep that relationship stable, on an even keel, is going to be very important.”
Chinese and American diplomats are negotiating a face-to-face meeting between the top leaders, China’s Premier Li Keqiang said earlier this week, after media reports that President Donald Trump plans to host his Chinese counterpart Xi Jinping next month at Trump’s Mar-a-Lago estate in southeast Florida.
Paulson said that while Trump has met with a number of heads of state in his young presidency, none will be “as important as the upcoming one with President Xi Jinping.”
“It’s a good time for a reset,” he said during the three-day gathering sponsored by the Development Research Center of the State Council, China’s cabinet.
Bilateral relations are getting more “difficult” and “complex,” Paulson said, and will become even so amid growing American public discontent over issues such as yawning U.S. trade deficit with China and criticism of Chinese regulatory barriers hindering market access.
Security and foreign policy concerns – such as over territorial tensions in the South China Sea and North Korea’s nuclear capability – are also making the ties between the U.S. and China increasingly complicated, he said.
He encouraged the use of “unconventional approaches” in solving thorny issues.
“Out-of-box thinking… can pose a very big risk, but it also can lead to breakthroughs to solve some intractable problems like North Korea.”
“There are going to be some very big challenges, but there are big opportunities. It’s going to take some skillful handling on both countries’ parts to navigate this,” Paulson said.
China‘’s trade surplus with the U.S. was $250.8 billion in 2016, though that was a decline of 4% from a year ago, according to Chinese official data.
As a presidential candidate, Trump accused China of manipulating its currency to make its exports cheaper and of stealing American jobs, and threatened to impose a 45% tariff on Chinese imports. He has softened his tone on China since assuming office.
Paulson said the U.S. should be working to increase its exports to China rather than discouraging Chinese imports.
On the yuan’s exchange rate, Paulson said the fact that Beijing has been supporting its value has made claims it was a currency manipulator invalid.
“I think it’s in everybody’s best interest for a while here to prop up the currency and have a relatively stable currency,”he said.
The yuan lost about 6.5% last year against the dollar as a massive amount of capital left China amid a strengthening greenback.
Chinese authorities have taken a series of measures to stem money outflow and keep the yuan stable. These include reducing its holdings of U.S. Treasury bonds.
China’s opening up has lagged behind domestic reforms and stalled over the last 10 years, Paulson said.
“Let’s look for ways to increase U.S. exports to China. Let’s look for investments that create jobs in the United States and in both countries,” he said.
“Great opportunities” lie in Chinese green-field investment in the U.S., and in small U.S. companies gaining a foothold in China, he added.
Speaking at the same event on Saturday, Zhang Tao, a deputy managing director of the International Monetary Fund, called for joint global efforts to ensure sustained recovery in world growth as he warned against uncertainties rising from U.S. interest rate hikes and the anti-globalization sentiment.
“It is essential that we have to work together. The international community must bring forth its commitment in economic cooperation,” he said.