Former US treasury secretary Henry Paulson, who initiated the top-level strategic economic dialogue between Washington and Beijing, urged mainland leaders yesterday to press ahead with financial reforms, including liberalisation of the exchange rate.
Stopping off in Hong Kong after meeting senior mainland officials, including Premier Wen Jiabao, at the Boao forum, Paulson, who was treasury secretary from 2006 to 2009 under president George W. Bush, told the South China Morning Post currency reform would benefit China.
'Renminbi flexibility is very much in China's interests,' he said. A market-determined exchange rate, he argued, would assist China's financial system to allocate capital more efficiently and help to rebalance the economy more towards domestic consumer demand.
'It is not in China's long-term interests to have an economy dependent on low-value-added, highly energy-intensive exports,' he said.
Paulson's visit follows a week of intense economic diplomacy over the yuan, culminating in a surprise visit by his successor as treasury secretary, Timothy Geithner, to Beijing on Thursday for talks with mainland economics supremo Vice-Premier Wang Qishan.
Both sides were keeping tight-lipped afterwards, but the meeting spurred feverish speculation that Beijing is on the point of revaluing the yuan, which it has kept steady at an exchange rate of 6.83 yuan to the US dollar since mid-2008.
The yuan's 2008 repegging, which Chinese officials describe as an emergency measure intended to ensure stability during the economic slump, has attracted bitter criticism from US legislators who argue the currency has been kept artificially cheap to boost China's exports at the expense of other economies.
Paulson, however, played down talk of deteriorating relations between Beijing and Washington.
'The relationship is better and stronger than some of the press reports would indicate,' he said.
He praised China's response to the global crisis, emphasised that the rest of the world had benefited from Beijing's economic stimulus efforts and dismissed fears that government-mandated bank lending was inflating a bubble on the mainland.
'I admire what China did,' Paulson said.
'You can't do something like that without creating some undesirable effects, but those are manageable.'
Paulson called on the US authorities to push ahead with regulatory reform, setting up a systemic risk regulator as well as an authority to wind up failed financial institutions, to minimise the impact of future crises.
He defended his record as treasury secretary, saying his main errors were mistakes of communication, and rejected criticism of his decisions in the depths of the crisis in 2008.
'With 20-20 hindsight, those decisions were right,' he said.