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China-US relations

Beijing should use ‘first rate’ economic team to launch reforms, former US treasury secretary Henry Paulson says

With Liu He and Yi Gang in the fold, the time is ripe for China to deliver the reforms that Western leaders have been demanding for decades, the former US treasury secretary argued

PUBLISHED : Friday, 13 April, 2018, 4:09am
UPDATED : Friday, 13 April, 2018, 11:32pm

Former US treasury secretary Henry Paulson on Thursday lodged a vote of confidence in the economic team that President Xi Jinping established in his recent leadership reshuffle, and said Beijing needs to take this opportunity to launch delayed reforms.

Harvard-educated economist Liu He was elevated to vice-premier of economic and financial affairs last month, alongside newly appointed central bank governor Yi Gang, making it more likely that Xi’s government will forge ahead with economic reforms that Western leaders have been demanding for decades, Paulson said in a discussion at the China Institute Executive Summit in New York. 

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“Liu He and the whole economic team is first rate,” Paulson said. “So now that he’s got them in place, he has got a much better ability to deliver and to get things done that benefit both [the US and China] and there are a lot of areas of complementarity and shared interest. 

“Xi has been saying, ‘I want to reform and I want to open up.’ He’s saying, ‘I want the markets to be decisive when it comes to allocating resources.’ I look at people in key spots around him. The team around him understands the merits of competition and understands the benefits of opening up.” 

Restrictions that foreign banks, asset managers and other financial firms face in China is one of the sore points that prompted US President Donald Trump to launch punitive tariffs against Beijing last month. 

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More than US$250 billion worth of two-way trade may be hit with additional duties if Washington and Beijing do not come to an agreement soon on how China treats foreign companies. 

Speakers at the China Institute conference have expressed frustration over Beijing’s lack of progress in granting foreign companies more access to the Chinese market. Washington has been pushing for more than a decade for a loosening in these restrictions. 

As treasury secretary under former US president George W. Bush, Paulson convened in 2006 the first in a series of regular high-level meetings between US and Chinese officials, also known as the “strategic economic dialogue”. 

The meetings have continued under slightly different names into the first year of Trump’s presidency. 

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Paulson’s dialogue with China was meant to “ensure leaders of the two countries can address critical economic challenges facing their economies, have a forum for discussing cross-cutting issues, and can make the most productive use of the existing bilateral commissions and dialogues”, according to a treasury department fact sheet. 

“Greater intellectual property rights and increasing market access” were part of the talks. 

A “comprehensive economic dialogue” under Trump has not resumed since discussions broke off without any joint agreement last year, as bilateral tensions leading up to the recent trade action announced by the current US leader began to escalate.

Others at the conference expressed hope that Liu and Yi would usher in a period of market opening.

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“The people who have been put in economic power on the China side are sophisticated market-oriented people,” said Nobel Prize-winning economist Joseph Stiglitz.  

“Yi Gang was a professor in the US, Liu He spent time at Harvard. All of the people in that inner circle are very close to a lot of people in the West. Every time I go to China in the last several years, Liu would ask to meet with us. Met with Yi Gang just a few weeks ago.” 

John Lipsky, a former deputy managing director at the International Monetary Fund, pointed to a speech by Yi at this week’s Boao Forum for Asia, as evidence that progress has started. 

In that speech, Yi said China would allow foreign investors to take a maximum 51 per cent equity stake in brokerage firms, futures companies and fund management firms and will remove foreign equity ceilings totally in these sectors within three years. 

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“Recent nominations of new senior officials in the Xi administration point to progress on reform,” Lipsky said. “The speech last week by Yi Gang points to a bunch of specific measures in the next few months to start to open up the financial sector.”