BEIJING -- China, which has greatly benefited from open trade and investment, must now boost opportunities for U.S. firms in its economy, U.S. Treasury Secretary Timothy Geithner said Monday in a broad speech on U.S.-China economic relations at Peking University.
"China has benefited hugely from open trade and investment and the ability to greatly increase its exports to the rest of the world. In turn, we expect increased opportunities to export to and invest in the Chinese economy," Mr. Geithner said in a written copy of his speech.
Mr. Geithner, who is in Beijing this week for meetings with top Chinese officials, said the U.S. and China both need to make significant policy shifts to help the global economy emerge from the current crisis on a more sustainable path.
For China, that means boosting domestic consumption, relying less on the American consumer and allowing for a more flexible exchange rate regime, in addition to creating more opportunities for U.S. firms, said the U.S. Treasury chief.
"Greater exchange rate flexibility will help reinforce the shift in the composition of growth, encourage resource shifts to support domestic demand, and provide greater ability for monetary policy to achieve sustained growth with low inflation in the future," Mr. Geithner said.
The U.S. has been urging China to increase exchange-rate flexibility for some years now. Since late last year, Beijing has pledged to maintain the basic stability of the yuan, saying such stability would help in coping with the international financial crisis.
Mr. Geithner's tone Monday was a marked shift from comments earlier this year during his confirmation process, when he labeled China a currency manipulator, although the administration later backtracked and played down the comments.
U.S. businesses have criticized China's weak protection of intellectual property rights, which discourages U.S. firms from bringing in advanced technology and processes, and sought greater access to key industries, such as the financial sector.
For its part, the U.S. must control a massive fiscal deficit and unwind market rescue efforts when conditions improve, according to Mr. Geithner, who is on his first trip to China since taking office in January. "In the United States, we are putting in place the foundations for restoring fiscal sustainability," he said.
Mr. Geithner's trip to Beijing, where he spent two semesters as a student, comes amid mounting fears about the U.S.'s ballooning borrowing needs and rising long-term interest rates.
In his speech, the U.S. Treasury chief seeks to reassure Chinese leaders that the Obama administration is committed to taking new steps to reduce its fiscal deficit once the economic recovery firms up. Specifically, the administration will work to bring the imbalance between fiscal resources and expenditures down to roughly three percent of gross domestic product.
The U.S. government has launched a series of costly programs aimed at boosting securities markets, reviving the housing market and infusing domestic banks with capital. But Mr. Geithner - who sees signs that the U.S. financial system is already starting to heal - noted that many of these programs have been designed so that they automatically unwind once economic conditions improve.
"The temporary investments and tax incentives we put in place in the [American Recovery and Reinvestment Act] to strengthen private demand will have to expire, discretionary spending will have to fall back to a more modest level relative to GDP, and we will have to be very disciplined in limiting future commitments through the reintroduction of budget disciplines, such as pay-as-you go rules," he said.
Such rules aim to reign in deficit spending by requiring new federal proposals to be either "budget neutral" or offset with savings from existing funds.
The U.S., China, and the other members of the G20 have committed to not resort to protectionist measures by raising trade and investment barriers and to work toward a successful conclusion to the Doha round of world trade talks, Mr. Geithner said.
"If we are successful on these respective paths, public and private saving in the United States will increase as recovery strengthens, and as this happens, our current account deficit will come down," Mr. Geithner said. "And in China, domestic demand will rise at a faster rate than overall GDP, led by a gradual shift to higher rates of consumption."
Additionally, Mr. Geithner will argue that China needs to play a greater role in international financial reform.
"I believe that a grater role for China is necessary for China, for the effectiveness of the international financial institutions themselves, and for the world economy," he said. "China is already too important to the global economy not to have a full seat at the international table, helping to define the policies that are critical to the effective functioning of the international financial system."
"I will be a strong advocate for U.S. interests, just as I expect my counterparts to represent China's," he said.
