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Ex-Treasury head Paulson urges tighter U.S.-China economic ties
July 17, 2012 / 7:51 PM / in 5 years

Ex-Treasury head Paulson urges tighter U.S.-China economic ties

Former U.S. Treasury Secretary Henry Paulson testifies before the Financial Crisis Inquiry Commission (FCIC) in Washington May 6, 2010. REUTERS/Kevin Lamarque

WASHINGTON (Reuters) - The U.S. consensus supporting close economic ties with China is fraying after four decades, requiring reforms to more closely integrate the world’s two biggest economies, former Treasury Secretary Henry Paulson said on Tuesday.

Paulson, who headed Treasury from 2006-9 and is a former Goldman Sachs chairman and CEO, laid out a blueprint for renewing ties in a lecture and a policy treatise at the Atlantic Council, a Washington think tank.

Speaking just after returning from meetings in China with government and corporate leaders, Paulson said his trip bore out data issued last week showing China’s growth rate, at 7.6 percent for the second quarter, was its slowest in more than three years.

“There’s no doubt that the economy has slowed down significantly, and in a number of areas, really slowed down,” he said.

Paulson added, however, “My own best judgment is that we’re not going to see a hard landing.”

Both Washington and Beijing have serious work to do, he wrote in his “A New Framework for US-China Economic Relations”.

“For our part, the United States needs a level playing field in China,” wrote Paulson. “But we would benefit, too, from more investment from China.”

The United States -- where support for trade with China has eroded through a combination of homegrown economic troubles, rising competition from China and mercantilist Chinese policies -- needs to welcome Chinese investment and to reform “outdated” export controls that limit technology exports, said Paulson.

China holds $3 trillion of foreign reserves and its corporations have billions to invest, but “they feel unwelcome here” and “they are confused by the different regulatory constraints and are put off by them,” he said.

“For China, it means undertaking financial reforms now that Beijing might well prefer to kick down the road,” wrote Paulson.

Beijing needs to work toward having a “market-determined currency and an accelerated timeline for capital account liberalization,” while stalled reforms of China’s state-owned enterprises need to be revived, he said.

China’s transition to an efficient economy less dependent on exports and investment requires “continuing to reform the state-owned enterprises, have them compete on a level playing field without all the subsidies and the special benefits,” he said.

Both countries need to make sure their financial markets are transparent with strong oversight, and to strengthen market confidence in their economies, wrote Paulson.

The U.S. challenge is to demonstrate that the government has the will to tackle its fiscal deficits and the ability to regulate complex financial dealings like the securitized mortgages at the heart of the 2007-8 financial crisis, he said.

“For China, it means overcoming a lack of transparency -- not least a dearth of trust in government data and questions about corporate accounting and disclosure,” wrote Paulson. (Reporting by Paul Eckert; Editing by James Dalgleish)

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