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After 4 decades, a new US-China consensus needed
Publication Date : 19-07-2012
From the time then United States president Richard Nixon made his historic trip to China in 1972, US policymakers have held the broad view that China's success would be good for the US.
But four decades later, this longstanding consensus underpinning close economic ties is fraying, said former US treasury secretary Henry Paulson. He said the next American president should undertake policy reforms to build a new consensus, one that takes into account the current realities of US-China economic relations.
Paulson, who served president George W. Bush in his second term and was a leader in the Sino-US strategic economic dialogue, presented his ideas for renewing US-China economic ties at the Atlantic Council, a Washington think-tank, on Tuesday.
Fresh from a visit to China where he met officials and business leaders, Paulson also spoke on the state of the Chinese economy, and election year politics in both the US and China.
The two countries are "working through an outdated economic framework - one created at a time when China was still an undeveloped economy," Paulson wrote in his paper, a New Framework for US-China Economic Relations, released at the talk. "A combination of technological, economic, industrial and political change means we cannot address today's dynamic and considerable economic challenges with our current policies."
One change was that Chinese industries have moved up the value chain faster than their US competitors expected and are competing globally in areas once dominated by US firms, such as in aircraft manufacture.
Another was more Americans view China as a strategic competitor and even an adversary, prompted by China's military build-up over the past years.
Paulson said the breakdown of the US consensus comes at a time when both economies have become deeply interdependent. "Bluntly put, the US will suffer if China fails to get ahead of its growing list of economic challenges, which are now threatening to interrupt its remarkable record of success in recent decades."
In considering a new framework for doing business, the US "needs a level playing field in China", he said. It would also benefit from more Chinese investment. China, on the other hand, wants a fairer shot at the US market, including policy changes that allow better access to technology and a clearer, more predictable process for investing in the US.
US-China trade friction has risen in recent years, with some US lawmakers accusing Beijing of unfair trading practices, such as keeping its currency undervalued and heavily subsidising exports. Beijing has hit back over what it says is protectionism, especially in technology and high-end manufacturing.
Recommending steps to smooth tensions, Paulson said the US should ensure greater openness to Chinese investment. The US should also free up bilateral trade and grant China market economy status on a sector- by-sector basis. China, for its part, should pursue a market- determined currency and improve transparency to strengthen market confidence in its economy.
Turning to the health of the Chinese economy - which grew at its lowest pace since 2009 according to recent GDP figures - Paulson said the slowdown was real but China was unlikely to experience a hard landing.
"There is a lot of room in their economy to respond to monetary policy, loosening up lending and so on," he said. He would "be surprised if China didn't grow 7.5 to 8 per cent this year".
But he warned that the bigger challenge will come in the next five years, because China's investment and export-dependent growth model is running out of steam and reforms have lagged.
Asked if Vice-President Xi Jinping, slated to take over as China's president later this year, was up to the job of tackling the country's complex challenges, Paulson said: "He will have his hands full, but he is up to it."
Turning to the major US political change, Paulson said anti-China rhetoric in the run-up to November's presidential election was to be expected but ultimately would not damage ties.