Henry Paulson, the US Treasury secretary, spoke recently at the annual gala of the National Committee on US-China Relations in New York. Unsurprisingly, the global financial crisis and the role China can play in averting a worst-case scenario (or, perhaps, averting another worst-case scenario) featured strongly in his speech, as did the progress made by the US-China Strategic Economic Dialogue in furthering bilateral relations. A couple of his remarks are worth noting:
“Today more than ever the world is looking to China to be a big contributor to global economic growth. While some see China as a threat that must be countered or contained, I believe that the only path to success with China is through engagement. We must recognize that China’s growth is an opportunity for U.S. companies and consumers, for our producers, exporters and investors. A stable, prosperous and peaceful China is in the best interest of the Chinese people, the American people and the rest of the world.”
But at the same time…
“Some in China look at the recent failures in our financial markets and conclude that they should slow down their reforms. But there is a great opportunity for China to learn from our significant mistakes and move forward with reforms that have the potential to produce important gains for China and its people.”
Paulson’s stance on this issue is already well-documented. He sees capital markets reform as key to achieving balanced and sustainable growth as well as the development of a market-driven and innovation-based economy.
Put the two quotes alongside each other and you have what amounts to a qualified acknowledgment of China’s potential to serve as a buffer against troubles in the US and Europe. It is a theme we touch on in a commentary that appears in the forthcoming issue of China Economic Review.
The Chinese government’s conservative – some would say controlling – approach to regulation and free market exposure has insulated it from much of the financial crisis. But his does not necessarily mean Beijing’s approach is right and Washington’s is wrong. If anything, China is guilty of both too much and too little regulation. This often leaves investors and other interested parties with no alternative but to try and second guess which way the regulatory winds will blow, rather than basing decisions on market fundamentals.
Ultimately, transparency is key to effective oversight.