Treasury Secretary Prods China on Exchange Rate Flexibility

By Todd Bullock
Washington File Staff Writer

Washington - A prosperous China is in the interest of the United States, but China's growing impact on world markets carries increased responsibility, says U.S. Treasury Secretary John Snow.

In March 3 remarks at Stanford University in California, Snow said that the United States and China have accounted for half of global economic growth since 2001. China is also the fastest growing export market for the United States.  (See related article.)

Snow said "divergent growth rates and saving and investment patterns among major economies are widening global current account imbalances" and urged China to do its part to address these imbalances.

Snow acknowledged the need for increased U.S. savings, which would boost U.S. demand abroad and reduce global imbalances, but he also called for China to continue its efforts to achieve more balanced growth to reduce heavy reliance on credit-fueled investments and exports.  He added this would take time because of China's high savings rate due to the lack of "financial and insurance products" to manage retirement and health care needs.

"China stands to benefit from expertise and capital that U.S. financial services firms can provide - a win-win for both countries," he said.

Snow also said China needs to reform and open its financial sector to address its banking system.  Such reforms would lead to more consumption-led growth and less reliance on savings, he said.

Addressing China's monetary policy, Snow urged China to "be more flexible" with respect to its currency exchange rate.  (See related article.)

"The administration is committed to open trade and investment policy," he said.  "We believe that the international trading system works best with free trade, the free flow of capital and with market-based exchange rates." (See related article.)

For additional information on U.S. policies, see The United States and China.

The text of Snow's prepared remarks is available on the Treasury Department Web site.