Tuesday, November 11, 2008

Financial Crisis Underscores U.S.-Chinese Relations

By Kelly Daniel

The interdependence of the U.S. and Chinese economies has become more apparent during the recent period of worldwide financial turmoil, according to Alan Holmer, special envoy for China and the Strategic Economic Dialogue (SED).

"Addressing these developments requires the dramatic steps we are taking in the United States, and it requires close international collaboration and cooperation," Holmer said in a speech about the future of the U.S.-China economic relationship presented at The Johns Hopkins University-Nanjing University Center in Nanjing, China, November 5.

Holmer said the United States and China are enjoying their most productive relationship ever thanks in part to an economic framework that created the most sophisticated dialogue ever between the nations.

Holmer's remarks highlighted the challenges and opportunities in the U.S.-China relationship, touching on bilateral investment treaties, energy security and environmental sustainability, product safety, intellectual property rights, market-based pricing on interest and exchange rates, and open trade and investment policies.

"One of the most important decisions facing the new American president will be how to respond to China's emergence as a global power," Holmer said. "Possibly the most consequential economic question of the 21st century for the United States and for China is whether we get our economic relationship 'right.'"

China and the United States are linked economically, Holmer said, with the two countries combining for more than 30 percent of worldwide gross domestic product (GDP) in 2007. China is the third-largest export market for the United States and, in 2007, Chinese exports to the United States accounted for 9.5 percent of Chinese GDP. In the past decade, U.S. exports to China increased six times as fast as U.S. exports to the rest of the world.

During the past two years, thanks to the structure and communication afforded by the SED, both nations have navigated crises in global markets, political changes in both governments and protectionist trends that could take both countries in "unhelpful" directions, Holmer said. The SED, created by President Bush and President Hu Jintao of China in 2006, has achieved tangible, important results by focusing on policy areas in which China's reform agenda and U.S. interests intersect, creating a U.S.-China relationship that is more productive and dynamic than ever, he said. The SED played a key role in creating a culture of collaboration that led to a signed Ten Year Framework on Energy and Environmental Cooperation, worked to modernize the financial sector and will see the formalizing of steps to open U.S. Food and Drug Administration offices in Beijing, Shanghai and Guangzhou.

"The mere creation and sustained attention of the SED demonstrates to the people of both countries that the United States values a stable, prosperous, and peaceful China," Holmer said. Continuing to recognize the commonalities between the two nations - "that we mutually benefit from trade, investment and deepening exchange" - is the key to the future, the special envoy said.

China can also benefit from the lessons the U.S. financial markets are learning as the global economic crisis has shown "the U.S. financial system is in need of reform," Holmer said. The United States continues to work on implementing the findings of U.S. experts in the President's Working Group on Financial Markets and of international experts in the Financial Stability Forum, which Holmer said are particularly applicable to financial markets around the world. However, the special envoy added it would be unfortunate if Chinese policymakers abandoned their pursuit of financial sector innovations as a result of the global economic turmoil.

"We must recognize that China's growth is an opportunity for U.S. companies and consumers, for our producers, exporters and investors," he said. "A stable, prosperous and peaceful China is in the best interest of the Chinese people, the American people and the rest of the world."

The full text of Holmer's remarks ( http://www.treas.gov/press/releases/hp1253.htm ) is available on the Treasury Department's Web site.