Treasury Says Reform in China a Prerequisite Before it Gains Greater Access to U.S.

(Geithner’s remarks are one of several Obama administration speeches being made in advance of Hu’s visit to the U.S. during the week of January 17, 2011. See ITT’s Online Archives or 01/14/11 news, 11011426, for BP summary of Commerce Secretary Locke’s comments on the U.S.-China relationship.)

The following are highlights of his comments:

Yuan Still Undervalued, Has Risen Only 3% Against Dollar

China still closely manages the level of its exchange rate and restricts the ability of capital to move in and out of the country. These policies have the effect of keeping the Chinese currency substantially undervalued. Since June of 2010, when Chinese authorities announced they would resume moving toward a more flexible exchange rate, they have allowed the currency to appreciate only about 3% against the dollar. The U.S. believes it is in China’s interest to allow the currency to appreciate more rapidly in response to market forces.

U.S. Willing to Help China Achieve its Goals, if China Helps U.S.

Geither states China’s objectives are focused on the following areas:

• more access to U.S. high technology products
• more access to investment opportunities in the U.S.
• same terms of access that market economies enjoy

The U.S. is willing to make progress on these issues, but its ability to move on these issues will depend on how much progress they see from China. As China reduces the role of the state in the economy, reforms policies that discriminate against U.S. companies, removes subsidies and preferences for domestic firms and technology, and allows its exchange rate to reflect market forces, then the U.S. will be able to make more progress on China’s objectives.

China’s Economy, Financial System Still Dominated by Government, Preferences

The commanding heights of China’s economy and its financial system are still dominated by the government. Chinese companies and workers are able to take advantage of a range of preferences and subsidies and operate behind trade barriers that give them a competitive advantage relative to U.S. and other foreign firms and workers. They get access to low-cost finance, land, and energy. They enjoy preferences in terms of access to government contracts.

The Chinese leadership has committed to expand opportunities for U.S. firms in access to procurement by government entities. And the government has committed not to discriminate against U.S. companies that operate in China.

U.S. Wants to Expand Opportunities for U.S. Companies to Export to China, Etc.

In the U.S. economic relationship with China, the U.S. has focused on two principal objectives:

• Expand opportunities for U.S. companies to export and sell to the Chinese market. This requires a more level playing field for U.S. companies that compete with Chinese companies in China, in the U.S., and around the world.
• Promote reforms that will reduce China’s reliance on export led growth and encourages a shift to domestic consumption and investment. As part of this, China’s exchange rate needs to strengthen in response to market forces.

Geithner notes that China presents enormous economic opportunities for the U.S., but its size, the speed of its ascent, and its policies are a growing source of concern in the U.S. and in many other countries.

IP Theft Still Major Issue, China Slowly Addressing U.S. Concerns

Theft of intellectual property remains widespread in China, across many industries. And the Chinese government has introduced a range of new policies to encourage innovation in China that are designed to favor Chinese technology over foreign technology, including in the enormous Chinese government procurement market.

Where these practices violate China’s international commitments, the U.S. is actively using the remedies available under U.S. and international trade laws to protect its interests. And China has been gradually moving to address some of the U.S.’ concerns.

The government recently launched a new enforcement effort to combat the theft of intellectual property and to force Chinese companies to pay for the intellectual property they use.

(See ITT’s Online Archives or 01/12/11 news, 11011222, for previous BP announcement of Geithner’s remarks.)