Engage China: Latest News

Rob Nichols
Transcript
Fox Business News
Money for Breakfast

Alexis: Well round two of talks between U.S. and china will kick off later today after the two countries met yesterday to determine how to remake the U.S. china economic relationship. China is the biggest holder of U.S. debt and with that in mind, we want to mention that from time to time, we'll be showing you the state of our debt and just how much you owe. For more on the U.S. and china talks, I'm joined by Ian Bremmer the president of the global political risk research and consulting firm Eurasia group. And Robert Nichols Chairman of the Engage China Coalition which works to push for the reform of China's financial sector and is also the president and COO of the nonpartisan financial and economic policy organization the financial service forum. Good morning, gentlemen. Thanks for being here.

Rob: Good morning.

Ian: Good morning.

Alexis: Ian, what essentially can we accomplish in these meetings?

Ian: Well, it's the first of these strategic and economic dialogue meetings under the Obama administration and as a consequence I think both sides are just trying to get out of this by saying they have good relationships. They're very important. And we're going to agree to cooperate on a whole host of fronts down the road. That is really what we're doing right now. The overwhelming priority for the Obama administration is of course domestic. It's getting through the recession. As a consequence, they know they don't have an awful lot of leverage with Beijing right now. So yes they are reading from the same page as you suggested before, but actually they have different books in front of them. And so let's just focus on the page right now. Let's get through this meeting and make it okay.

Alexis: Robert, they do have very different play books, but we, the American consumer, the American taxpayer need to understand why this relationship with china is so essential. Tell me why.

Rob: Well, there are several reasons, Alexis. And I will complement a lot of what Ian said. First of all, we have this trade imbalance with china which is concerning. So one of the messages that we're trying to convey to china is the need for them to move from an export -- a manufacturing for export based economy into a consumption based economy. as they do that, not overnight, but as they do that over time, that will lead to a huge and deep market for U.S. manufacturers, U.S. service providers, the manufacturing heart land and so over time if we can help them transform their economy into this consumption-based economy, that will be fantastic for the American consumer and also for the Chinese economy. They've seen in this global slowdown of course that their own economy, their own GDP has shrunk as a result of being so reliant on global demand, that they realize they need to change their economy itself. You know, one overall message that's come out of the first day of these talks, and it's very consistent with what Ian said is to really to borrow a phrase from my son's favorite movie the high school musical "We are all in this together." There are a lot of shared challenges. Both economies are in state of fragility. Both economies have implemented stimulus. Both leaders want to talk about the need to reduce protectionism. On the part of the Chinese and the American economies, the third, the world's third and world's first largest economies, we can do more together than if we're operating separately.

Alexis: Interesting points Robert because I want to touch on some of what he suggested which is he suggested that china knows they need to work on their own domestic economy. But there's an -- there's a debate about that within the country as to why they are not doing more of that and why they are focused so much on an export-driven economy. In fact Treasury Secretary Geithner in his opening comments yesterday said you do need to work on your own domestic economy, and that should be your priority. But some suggest it isn't their priority. Why is that so essential?

Ian: It's their long-term priority. Look, I mean, they understand that exports have fallen off a cliff, and that's not going to fix itself any time soon. Which means that the stimulus that china has already been putting into building up infrastructure and having public demand for goods, which has been what's taken them out of the recession so far is something they are probably going to have to keep doing over the course of the next couple of years. U.S. consumption isn't going to suddenly magically reappear. But the Chinese save 25% of their earnings, and they do that because they don't really trust the social safety net that doesn't exist and won't any time soon. They don't really trust Chinese political institutions so building that trust is frankly a matter of a generation. and any Chinese leader you talk to and independent observers as well that really know that country understand this isn't a short-term fix, so all of that stimulus is going into infrastructure development, and as a consequence, it's been very energy intensive, and it is also going to lead to one of the big problems that really can't be fixed, and that is the Chinese emissions issue. You are not going to see a come to heads between the U.S. and China today, and you are not going to see it in Copenhagen in December.

Alexis: Robert, one of the key things coming out of this meeting at least we know from day one is both countries saying a renewed effort to maintain these stimulus packages two of the largest in the world to make sure that their economies are able to recover. Treasury secretary Geithner made it clear that the U.S. will quote "ensure a sustainable deficit by 2013." That's critical because china is very very concerned about the dollar denominated assets that are sitting in their reserves.

Robert: Right. Of course china has, you know, very very significant and massive holdings here in the United States so it is quite logical for them to be interested in the fiscal architecture of our country here. So part of the challenge of Secretary Geithner and his team are to communicate to the Chinese that hey we are doing our best to stimulate the economy. There have been a lot of creative and inventive measures taken since the credit and capital market turmoil struck us last fall for us to rebuild our economy and put it back on a state of growth. at the same time they need to communicate that hey listen we understand that these long-term deficits and our debt outlook is a concern, is a problem, and we do have a plan to turn our economy around so that over time we can get that long-term debt and deficit back into control.

Alexis: Ian, just 20 seconds. What does this do to the position of the U.S. dollar, and why do we care so much about this conversation?

Ian: Well, the Chinese just yesterday were already talking about the fact they would like to see a move away from the U.S. dollar as the world's reserve currency towards more diversification. That's happening whatever the Chinese say. The fact is they don't buy it when we say we're not going to have massive deficits. They don't buy it when we say we're not going to have massive inflation. As a consequence of that they are trying to decouple from the U.S. economy. If they can't economically decouple you can bet they will politically decouple that's something we will see as a challenge as we enter the next strategic economic dialogue over the next years.

Alexis: Do you think that can happen in this administration

Ian: I think you are going to see trends towards it. I think no matter what these guys want to do when they are looking at each other and they want to play nice, the fact is you are going to see a more competitive relationship between the United States and China over the next few years and the economic positions of these countries and their trajectories to get out of them require that.

Alexis: We didn't even get into North Korea. All right, gentlemen, Ian, thank you very much. Robert much appreciated.