U.S. Department of the Treasury

(Archived Content)

HP-1316

At the fifth Cabinet-level meeting of the Strategic Economic Dialogue (SED), United States and Chinese policymakers grappled with the most significant issues in our bilateral economic relationship, including strategies for managing macroeconomic risks and promoting balanced economic growth; strengthening cooperation in energy and the environment; confronting the challenges to trade; promoting open investment environments; and furthering international economic cooperation. Cooperation to address the current global financial turmoil and economic slowdown and cooperation on key energy and environmental challenges were two areas of particular focus as 15 U.S. Cabinet officials and agency heads joined Secretary Paulson for discussions with China's Vice Premier Wang Qishan and a delegation of 21 Chinese minister and agency heads.

President George W. Bush and President Hu Jintao established the SED to create a Cabinet-level forum to develop strategies to reach shared long-term objectives while managing short-term challenges in our economic relationship. The dialogue this week in Beijing demonstrates that through the SED, the U.S. and China have built a foundation of understanding which enables frank discussion and timely resolution of differences, and enables both sides to focus on areas of shared goals where working together can increase the progress of both nations.

The global economic and financial stresses require a global response. The United States welcomes recent Chinese measures to strengthen domestic demand and maintain economic growth. We welcome China's commitment to the declaration of the G-20 Summit on Financial Markets and the World Economy and the action plan to implement principles for reform, including: strengthening transparency and accountability; enhancing sound regulation; promoting integrity in financial markets; reinforcing international cooperation; and reforming international financial institutions. International financial institutions have a vital role to play in promoting global growth and stability. The U.S. therefore has supported the inclusion of China in multilateral institutions, such as the Inter-American Development Bank, as well as measures to adjust shares in the international financial institutions to better reflect the relative weight of dynamic emerging market economies in the world economy. China's accession to the Financial Action Task Force (FATF), following the May 2007 SED meeting, has led to stronger anti-money laundering regulations and greater cooperation in cutting off financing to terrorists.

• Trade Finance - Current financial stresses have impaired access to trade finance to help emerging market businesses and consumers purchase imports. To support exports of products from the U.S. and China to emerging economies, both countries will make additional resources available to increase access to affordable trade finance. To maintain trade flows, including with emerging and developing economies in the current difficult financial conditions, the United States Export-Import Bank and the Export-Import Bank of China agreed to make available additional resources for trade financing facilities. The U.S. Export-Import Bank is prepared to provide additional resources of $12 billion, and the Export-Import Bank of China is prepared to provide additional resources of up to $8 billion, if needed to assist in the financing of the export of U.S and Chinese goods and services. This is expected to increase the availability of trade finance by $38 billion, due to the ability of short-term trade financing to support three or more times the value of financing in trade volume during a year. These efforts will be undertaken in coordination with financial institutions in developing economies and multilateral institutions to ensure that our efforts maximize the positive impact of this new liquidity on global trade.
• Financial Stability Forum – The United States supports extending membership in the Financial Stability Forum (FSF) to China and other important emerging market economies, bringing the world's third largest economy into an important global organization charged with promoting financial stability through cooperation in financial supervision. The FSF has played an important role in securing international agreement on regulatory measures needed to address financial weaknesses and in facilitating action on many of the global stability commitments endorsed by the recently concluded G-20 Summit on Financial Markets and the World Economy.
- Current financial stresses have impaired access to trade finance to help emerging market businesses and consumers purchase imports. To support exports of products from the U.S. and China to emerging economies, both countries will make additional resources available to increase access to affordable trade finance. To maintain trade flows, including with emerging and developing economies in the current difficult financial conditions, the United States Export-Import Bank and the Export-Import Bank of China agreed to make available additional resources for trade financing facilities. The U.S. Export-Import Bank is prepared to provide additional resources of $12 billion, and the Export-Import Bank of China is prepared to provide additional resources of up to $8 billion, if needed to assist in the financing of the export of U.S and Chinese goods and services. This is expected to increase the availability of trade finance by $38 billion, due to the ability of short-term trade financing to support three or more times the value of financing in trade volume during a year. These efforts will be undertaken in coordination with financial institutions in developing economies and multilateral institutions to ensure that our efforts maximize the positive impact of this new liquidity on global trade. – The United States supports extending membership in the Financial Stability Forum (FSF) to China and other important emerging market economies, bringing the world's third largest economy into an important global organization charged with promoting financial stability through cooperation in financial supervision. The FSF has played an important role in securing international agreement on regulatory measures needed to address financial weaknesses and in facilitating action on many of the global stability commitments endorsed by the recently concluded G-20 Summit on Financial Markets and the World Economy.

During the fifth Cabinet-level SED in Beijing, both sides discussed market turmoil of recent months and the repricing of risk in global markets. The United States reported on steps it is taking to address market turmoil in the short-term, and intermediate-term steps to address policy issues arising from recent turmoil. The Chinese also reported on steps they are taking to open their financial services sector and further integrate into global markets.

The United States and China reached agreement on a number of issues resulting in further opening of China's financial services sector:

• Bond Trading: Foreign incorporated banks in China will be allowed to trade bonds in China in the inter-bank market, both for their customers or their own accounts, on the same basis as Chinese-invested banks. This action opens up market opportunities for U.S. banks that were previously limited to Chinese banks.
• Increasing Liquidity for Foreign Banks: To promote financial stability, China's State Administration of Foreign Exchange will allow foreign banks to increase their liquidity through either guarantees or foreign currency loans from overseas affiliates on a temporary basis, notwithstanding foreign currency debt quotas. This action helps maintain investor and depositor confidence so that U.S. banks can continue to grow their business in China.
• Equator Principles: China's Industrial Bank announced adoption of the Equator Principles. This action, as an important step in the implementation of China's green credit program, demonstrates the increased emphasis Chinese banks and regulators are placing on borrowers adhering to strong environmental standards in China and abroad.
• RMB Appreciation: The RMB has appreciated 20.3% since July 2005 against the U.S. dollar, and 22% on a trade-weighted basis. While recognizing that currency movements will be uneven over shorter periods, the United States encouraged China to continue, and accelerate, RMB appreciation and flexibility.
: Foreign incorporated banks in China will be allowed to trade bonds in China in the inter-bank market, both for their customers or their own accounts, on the same basis as Chinese-invested banks. This action opens up market opportunities for U.S. banks that were previously limited to Chinese banks.: To promote financial stability, China's State Administration of Foreign Exchange will allow foreign banks to increase their liquidity through either guarantees or foreign currency loans from overseas affiliates on a temporary basis, notwithstanding foreign currency debt quotas. This action helps maintain investor and depositor confidence so that U.S. banks can continue to grow their business in China.: China's Industrial Bank announced adoption of the Equator Principles. This action, as an important step in the implementation of China's green credit program, demonstrates the increased emphasis Chinese banks and regulators are placing on borrowers adhering to strong environmental standards in China and abroad.: The RMB has appreciated 20.3% since July 2005 against the U.S. dollar, and 22% on a trade-weighted basis. While recognizing that currency movements will be uneven over shorter periods, the United States encouraged China to continue, and accelerate, RMB appreciation and flexibility.

The United States and China announced a number of steps that enhance collaboration between the two countries to promote energy security and further environmental sustainability. Highlights include the signing of the EcoPartnership Framework, the announcement of seven separate EcoPartnerships, consensus on five action plans and the establishment of a goal for energy efficiency under the Ten Year Framework. A Fact Sheet on Energy and Environment Accomplishments was released on December 4.

The United States is one of the most open economies in the world. Ensuring the integrity of trade, the quality of products, and the safety of food, drugs and medical devices is a continuing priority for the United States. Americans expect that goods and products sold in our marketplace are safe, and the United States continues to take steps with all trading partners to ensure the safety and quality of these goods and products.

Both the United States and China reaffirmed the implementation and progress of existing memoranda of agreements and understanding concerning food and product safety, with the aim of enhancing cooperation and dialogue on product quality and food safety. Additionally, the two countries agreed to participate in the activities and capacity building of international organizations related to food and agricultural products.

Advancing open investment and trade remains a key area of discussion for the SED. During a period of slowing global demand, it is especially important that both countries avoid protectionism. Open markets will speed economic recovery, and the United States and China have made joint commitments and taken joint actions to ensure that our economies remain open and competitive, including:

• Doha: The United States and China reiterated commitments to pushing forward toward a successful completion of the WTO's Doha Development Agenda, including the commitment at the recent G-20 Summit to reach agreement on modalities by the end of the year.
• Bilateral Investment Treaty: Building upon the agreement at the June 2008 meeting of the SED to begin bilateral investment treaty (BIT) negotiations, three productive negotiation rounds have been held. Our objective is an agreement that facilitates and protects investment and enhances transparency and predictability for investors.
• Transportation Forum: The United States and China held the first meeting of the Transportation Forum on December 3, 2008, with specific areas of discussion that included urban congestion and infrastructure development. The U.S. and China signed a joint statement, including an agreement to hold the second Transportation Forum in 2009 in the U.S. and establishment of working groups to discuss priority areas of cooperation including railway technologies, urban congestion, innovative financing, transport of hazardous goods, and disaster assistant coordination.
• Investment Forum: The United States and China held the second meeting of the Investment Forum on December 3, 2008, with specific areas of discussion including creating conditions that will increase investment between the United States and China and enhance transparency and predictability for investors and how investment can make sustained contributions to bilateral economic cooperation and development. Both nations agreed that the forum discussions should be continued.
• Innovation Forum: At the second U.S.-China Conference on Innovation and Commercialization, held on December 2, 2008, the United States and China brought together government, industry, and university leaders to address key challenges and opportunities for fostering innovation and commercialization. The two sides discussed ways in which to develop human talent for innovation, attract financial investment for entrepreneurial enterprises, adapt policies and regulatory frameworks to promote and protect innovation, commercialize technologies, and recognize the importance of market-driven standards.
• Cooperation on Metrology: The U.S. Department of Commerce and China's General Administration of Quality Supervision Inspection and Quarantine signed a Protocol for Cooperation on Metrology, Standards and Conformity Assessment. This protocol will advance measurement sciences in both countries by facilitating bilateral trade, improving product quality, and increasing the development of technical standards and collaboration.

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: REPORTS
• Paulson Closing Statement at the SED
• Joint U.S.—China Fact Sheet: The Fifth U.S.—China SED
• US and China Announce Annual Trade Finance to Assist Global Trade