China-US summit scales the heights for hot air and smokescreens
'We will each take measures to address imbalances, encourage greater national savings in the United States and to increase consumption and exchange rate flexibility in China.'
US Treasury Secretary
HE HAD TO say something of course. In January the Democrats will gain the ascendancy in the US Congress and they talk tougher on China than the Republicans do. Thus Mr Paulson found himself obliged to go to Beijing and prove that he can talk tough too.
There is a description for this kind of toughness in American idiom - rough tough powder puff. Another high-level US/China talk shop has ended and if all the hot air that came out of it could be measured, we might see a significant addition to global warming. There wasn't much else.
Take Mr Paulson's pledge that the US government will 'encourage greater national savings'. How?
Will he tell his boss, President George W. Bush, to abolish capital gains taxes? Will he tell his colleague, Federal Reserve Board chairman Ben Bernanke, to forget inflation and find ways instead to make US citizens save money?
They do not save money at the moment. The personal savings rate in the US is negative. The average man on the street spends more than he earns. The US federal government has long been in the same fix. Its level of debt has risen by almost US$3 trillion or 51 per cent since Mr Bush took office as president.
Just how does Mr Paulson expect to change these trends? Does he plan to stand in front of a microphone and say: 'Aw c'mon, you guys, you're using your credit cards too much. Stop it, will ya?' Can you really picture a professional investment banker, ex-boss of Goldman Sachs, talking such twaddle and believing it will do anything?
Take his urgings to Beijing 'to increase consumption'. I now refer you to the chart on ownership of private cars in the mainland. Over the past three years alone, this figure has more than doubled to 13.9 million vehicles. Over the past 10 years it has grown almost ninefold. Overall retail sales are growing by 15 per cent a year.
I wonder what definition Mr Paulson gives to the word 'increase'. Rarely in human history has any population shown a greater surge in consumer spending than China's has done and for so long without a break. Will nothing satisfy him?
Then we have his urgings to China that it do more to protect intellectual property rights. I now refer you to a study by the Motion Picture Association of America, the chief victim of copyright piracy, on the countries that steal the most from its members. Look at the bar chart. Has Mr Paulson yet booked his trip to Mexico to fulminate against pirate videos? Has he called British Prime Minister Tony Blair to account for all the copyright thieves in the United Kingdom who prey on American movie and music producers? I don't recall hearing of it. China is an easier target.
His biggest issue in Beijing of course was the US dollar exchange rate of the yuan. He wants a stronger yuan in the belief that this will balance the competitive edge between China and the US in merchandise trade.
Let us remember here that the yuan has already appreciated against the US dollar by 5.5 per cent since July last year. Beijing is of the view that one big revaluation would upset China's economy too much and this is a perfectly defensible view. It has thus adopted a creeping revaluation. I would have expected a top US investment banker to understand it perfectly.
But a stronger yuan will do very little anyway to redress the trade imbalance with the US. China's exporters do not deal primarily in yuan. They price their goods in US dollars and by far the largest share of their input costs are denominated in US dollars. Yuan revaluation does not affect their businesses very much.
More than that, most of them are not really mainland entities. Almost 60 per cent of China's exports are now made by foreign invested corporations. If Mr Paulson wants a clue as to what nation is most responsible for the US trade imbalance with China he should look in a mirror.
But none of this, of course, can he admit at a talk shop in Beijing when the American media is looking on, even if he knows it to be true.
Then again he may not know it. Investment bankers can be very narrowly focused people.
Perhaps he should ask himself whether he still has his Goldman Sachs blinkers on.