US official presses China to loosen financial markets

Mar 8, 2007, 4:31 GMT

Beijing - US Treasury Secretary Henry Paulson on Thursday urged China to speed up the opening of its financial services markets, saying the move would benefit both China and the international business community.

'Increasing the pace of reform in your financial services markets is in the best interest of China's future,' Paulson said in a speech to local business leaders at the Shanghai Futures Exchange.

Faster opening of the markets would allow China to 'spread prosperity to all the people of your nation, to promote greater stability here and abroad and to demonstrate leadership in accordance with your global economic presence,' he said, according to an advance copy of the speech released by the US Treasury Department.

Developing financial markets would move China 'toward its goals of more balanced, harmonious, innovation-based and environmentally sustainable growth,' according to Paulson.

The overreliance on low-cost manufactured goods in the Chinese economy 'has the potential to cause problems in the future,' Paulson added.

'Your long-term economic strength requires a diverse economy with high value-added manufacturing and world-class services, including financial services,' said the former chairman and chief executive officer of the Goldman Sachs investment bank.

'Time is of the essence,' Paulson said. 'One lesson I have learned over the years is that although perhaps not as easy politically, it is better to implement reforms during periods of economic strength.

'The risks for China are greater in moving too slowly than in moving too quickly toward transparent, liquid, stable capital markets.

'The longer China waits, the more difficult it will be to create robust capital markets and reach your goal of more balanced, harmonious and innovation-based growth.'

Paulson held talks with Chinese officials on Wednesday with China's growing trade surplus and US pressure for China to float its currency among the key topics.

China's large trade surplus has caused tensions with the United States and Europe, where critics said its renminbi currency remains undervalued and makes Chinese exports cheaper.

The US trade deficit with China reached 233 billion dollars in 2006, 28 per cent of the total US trade deficit, according to US figures.

The Chinese government has allowed its currency to appreciate by about 5 per cent against the dollar over the last 18 months, and it was expected to rise by a similar margin this year.