Regulatory system is inadequate, Paulson says
The United States must work with China and other nations within a new international regulatory framework because the current one is grossly inadequate in solving global economic problems, said former US treasury secretary Henry Paulson.
'The US regulatory infrastructure is outmoded, but that is nothing like the global regulatory infrastructure. China and the US [cannot operate the way they have] been. We need new ways to operate. We have some fundamental global problems,' Paulson said yesterday at the University of Hong Kong.
'If we get the world's biggest developed economy, the US, and the world's biggest developing economy, China, to agree, it's easy to solve global economic problems. If not, it's difficult,' added Paulson, a former chairman and chief executive of Goldman Sachs.
China, and other developing nations like Brazil and India, has an increasingly important role in the global economy, he said.
On Sunday Paulson said China would benefit from a flexible currency. But yesterday he said such remarks were 'never to lecture China. I've never just focused on the [yuan]. The challenge China has is to continue to reform'.
Last week, Vice-President Xi Jinping told Paulson that China would not alter its currency policy and called for the US to relax restrictions on hi-tech US exports to China.
On the US economy, Paulson expected growth to pick up in the near future, but 'US unemployment is going to remain at an unacceptable level for a number of years'.
He said the US has still to come up with a rational policy for the US market, which was a root cause of the global financial crisis. 'Right now, the US housing market is very fragile, but it is no longer the tail that wags the dog. The US housing market had a disappointing first quarter below expectations. It will be stronger in the second half and next year,' he said.
According to Lombard Street Research chief economist Charles Dumas, the US quantitative easing programme known as QE2 - which was launched in November and is due to end in June - will boost the country's gross domestic product growth this year. Dumas expected GDP above the normal annual growth of 3 per cent, but said next year it could be zero or negative.
'The 2012 bust will be bad for [US President Barack] Obama and good for the Republicans, who want to remove Mr Obama,' he said. Dumas said this is because QE2 has shifted US spending from next year to this year. He was speaking in Hong Kong yesterday at a seminar organised by London think tank Lombard Street.
Americans will save more in the medium term, which will cause US net imports to fall, Dumas said.
Lombard Street economist Diana Choyleva said: 'The global crisis marks a turning point for China, the end of China's export-led model. China's GDP rowth will halve to 5 per cent over the next 10 years.'
And Beijing's efforts to boost domestic consumption will not succeed, according to Peking University associate professor Michael Pettis, because infrastructure spending debts will drive down consumption.