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US urges financial reform in China ahead of talks
by Staff Writers
San Francisco (AFP) April 26, 2012

The United States on Thursday urged China to undertake financial reform that would help to level the playing field between the two largest economies, in advance of high-level talks next week.

"Financial reform in China will help reduce one of the main advantages China's state-owned enterprises have in competing with US companies," Treasury Secretary Timothy Geithner said in a San Francisco speech.

Geithner pointed out that China's financial system is dominated by large state-owned banks, which favor lending to large state enterprises.

They also cap the interest rate savers can earn to below the rate of inflation, a system that forces people to "save excessively," limiting consumption and starving more deserving firms of capital, he said.

Geithner made the reform call in a speech ahead of high-level bilateral economic and political talks with China on May 3-4.

He and Secretary of State Hillary Clinton will hold talks with State Councilor Dai Bingguo and Vice Premier Wang Qishan in Beijing, in the fourth annual US-China Strategic and Economic Dialogue.

Geithner lauded a pilot program launched last month in Wenzhou, allowing new private lenders to lend to private enterprises, as "a step in the right direction," according to the prepared text of the speech.

He called for interest rates that better reflect market forces to foster a more efficient financial sector, and which in turn could boost US exports to China.

"Raising the ceiling on deposit rates will also allow Chinese households to earn a higher return on their savings, both increasing their income and reducing their need to save, thus increasing their ability to consume goods and services, including from the United States," he told the Commonwealth Club, a public policy forum.

Geithner gave a sweeping summary of "significant progress" the US has made in addressing imbalances with China since President Barack Obama took office in January 2009, particularly on trade and intellectual property.

US exports of goods to China have almost doubled, growing twice as fast as exports to the rest of the world, he said.

Benefiting from China's fast-growing economy and rising incomes, the United States exported around $130 billion in goods and services to China in 2011, supporting over 600,000 jobs in the US.

Geithner noted that China had pledged to improve the protection and enforcement of US intellectual property rights and strip technology transfer and cooperation as a precondition for access to the Chinese market.

"China appears to be prepared to negotiate new rules on official export financing with the United States and other major exporters so that US goods and services will be competing based on quality and price rather than the terms of foreign government financing," he said.

Geithner raised long-standing US concerns about the undervaluation of the Chinese currency, the yuan, saying that Beijing's recent exchange-rate reforms still leave the correction "incomplete."

"The Chinese currency needs to appreciate further against the dollar and the other major currencies," he said, noting that would help to address "a source of unfair competition with China's trading partners."

The Treasury secretary also noted Washington's actions to protect American companies from unfair competition, citing 36 antidumping and countervailing duty orders slapped on unfairly traded imports from China.

Both the United States and China are members of the Group of 20 major advanced and emerging economies. The G20 has agreed on the need for global trade rebalancing -- which aims to reduce surpluses and deficits -- to promote sustainable economic growth.

For the United States, running a huge trade deficit dominated by Chinese imports, the goal is to consume less.

China has begun reforms to refocus its export-led economy toward domestic consumption.

Next week's strategic talks between the two giants come ahead of a June 18-19 summit of G20 leaders in Los Cabos, Mexico.

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