Inside US-China Trade: Financial Services Groups Push For Market Access Talks At G7
By Dan Neumann
U.S. financial services firms last week urged Treasury Secretary Timothy Geithner and his G7 counterparts ministers to continue to press for financial reform and expanded market access in China as part of international efforts to achieve more "balanced" global economic growth.
"A more efficient and effective Chinese financial sector is necessary if China is to achieve its economic goals of maintaining high rates of growth and job creation, building a more services-based, consumer-driven economy, reducing poverty, and ensuring a more equitable distribution of opportunities and prosperity -- goals very much in the interest of G7 nations," the Engage China Coalition wrote in a Feb. 3 letter.
The coalition, which is made up of U.S. services providers that favor an engagement approach with China on economic issues, calls financial system reform a "critical aspect of the G20's articulated priority of pursuing more balanced global economic growth."
By pushing for this shift in the Chinese economy, U.S. service providers hope to help China's citizens by offering products to help "save, invest, insure against risk, raise standards of living, and consume at higher levels," and move toward an economy "that is less dependent on exports, and more services-based and consumer-driven," according to the letter sent on the eve of a G7 finance minister meeting in Canada.
"By helping to provide the financial products and services that China's citizens and businesses need to save, invest, insure against risk, raise standards of living, and consume at higher levels, foreign financial institutions can help China develop an economy that is less dependent on exports, and more services-based and consumer-driven," concludes the letter signed by coalition Chairman Robert Nichols.
The G7 nations are the U.S. Canada, France, Germany, Italy, Japan, and the United Kingdom.
The financial services coalition did not press Geithner to pressure China on the need to raise the value of its currency.
"Our view is that we're not about currency and don't want to get involved in it," one informed source said. "We don't feel that it necessarily helps our cause here."
At the same time, the letter "explicitly" pushes for a greater move toward rebalancing the Chinese economy away from export dependence, this source said. While rebalancing "is not a code-word for currency, clearly you need to move on currency if you're going to reform," he said.
Financial services sources added that the currency issue often increases the tension in the U.S.-China relationship, making progress on economic issues more difficult, in particular market access. These sources said they were closely following President Obama's interest in the currency issue (see separate article) to see what impact the heightened presidential focus has on bilateral economic relations. One source called the issue "the Dali Lama of economics," because "the Chinese just bristle every time it comes up, and they bristle at the notion of the U.S. telling them what to do."
This source added that as Chinese exports to the EU and other Asian countries begin to increase, international pressure from the U.S., EU and some developing countries is building to push China to revalue its currency. "There seems to be a converging view in developing markets that the currency needs to move," this source said.
In a related development, last week Peterson Institute for International Economics Senior Fellow Arvind Subramanian made the case in an in-house interview that a more effective way to get China to alter the undervaluation of its currency would be for the U.S. to build a coalition with those developing nations whose exports must compete with unfairly cheap Chinese exports.
Countries like Mexico, Brazil, Turkey, India, South Korea and South Africa "need to come together" with the U.S. and the EU, he said Feb. 4. There is more hope that such a coalition could come together now that in the past, he said, because China's policy is not only affecting trade but also those nations' central banks' macroeconomic policy management.
"I am hoping now that central bankers in those emerging market countries, along with their trading constituencies, can come together with the U.S.," he said. But this will require "more creative diplomacy" by the Obama administration as well as a decision by those nations to respond to such a U.S. overture.
This approach would be more effective than continuing to try to work through the International Monetary Fund, which the IIE scholar said had already "comprehensively failed," or naming China as a "currency manipulator" in the upcoming Treasury currency report to the U.S. Congress.