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| © AFP/Getty Images/File Justin Sullivan |
WASHINGTON (AFP) - The United States will press China to make progress on financial reform at high-level bilateral talks next week, Treasury Secretary Timothy Geithner has said.
The US is going "to put a little more attention this time on expanding our discussion to the next stage of financial reform in China," he told a US-China Business Council forum in Washington.
"If China's going to be successful in moving the economy away from exports to a more domestic-demand economy, it's going to have to increase the return to savers in China and dismantle the set of protections that are now designed to lower the cost of capital to state-owned enterprises."
Geithner and Secretary of State Hillary Clinton will host Chinese Vice Premier Wang Qishan and State Councilor Dai Bingguo in the two-day talks that open Monday in the US capital amid continued tensions over debt, exports and the value of China's currency.
It will be the third US-China Strategic and Economic Dialogue (SED) since Obama and Hu established the forum to discuss a broad range of issues in April 2009.
Geithner said China's current system of controls on both bank deposit and loan rates is designed to channel low-cost loans to state-owned enterprises, giving them a competitive advantage over private firms, both domestic and foreign, and adding to trade tensions.
Timothy Geithner speaks on the US-China Strategic and Economic Dialogue
© AFP/Getty Images Alex Wong
High on the economic agenda for the talks are persistent conflicts over China's monetary policy and intellectual property rights protection.
Geithner said that China's currency, the yuan, had appreciated by more than five percent since Beijing decided in June 2010 to allow it to trade more freely against the dollar.
However, "the renminbi remains substantially undervalued," he said, using the formal name for the yuan.
"China needs to let the exchange rate adjust at a faster pace to correct that undervaluation," he added.
China in July 2005 freed the yuan from an 11-year-old peg to the dollar and moved to a tightly managed floating exchange rate.
But in mid-2008, policymakers effectively pegged the currency at about 6.8 to the dollar to prop up its exporters during the global financial crisis.
Critics say the yuan could be undervalued by as much as 40 percent.
On Tuesday, the yuan edged down against the dollar, to 6.498 yuan per dollar from 6.492 yuan.
Geithner said the US strategy is to "work with the grain of China's interests."
The Chinese authorities' recent moves to cool inflation in the booming economy "will be enhanced if they let the exchange rate appreciate more rapidly," he suggested.
The Treasury Department has delayed the publication of its next currency manipulation report to Congress that could lead to sanctions against Beijing until after the SED meeting.
The semi-annual report, which was due on April 15, has become a focal point for critics who accuse Beijing of unfairly keeping the yuan weak against the dollar to boost Chinese exports.
Geithner said the Obama administration sees encouraging changes in China's economic policy that could benefit all countries, but stressed the need for "action on the ground."
"Over the past two years, we have seen the beginning of promising shifts in the economic policy in China that have the potential to benefit China, the United States, and the world as a whole," he said.
Geithner recalled that Chinese President Hu Jintao, in his state visit to Washington in January, had made commitments to Obama to level the playing field between the world's two largest economies.
The pledges included further opening of access for non-Chinese companies to compete for government procurement, and strengthening intellectual property rights protection and enforcement.
"These changes in policy direction offer the prospect of much more substantial economic gains for US companies and workers in the future, provided we see durable changes in actual policies on the ground," he said.
© AFP -- Published at Activist Post with license
