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TheUnitedStatesandChina,CooperatingforRecoveryandGrowth
TheUnitedStatesandChina,CooperatingforRecoveryandGrowthTreasurySecretaryTimothyF.Geithner
SpeechatPekingUniversity-Beijing,China
ItisapleasuretobebackinChinaandtojoinyouheretodayatthisgreatuniversity.
IfirstcametoChina,andtoPekingUniversity,inthesummerof1981asacollegestudentstudyingMandarin.IwasherewithasmallgroupofgraduateandundergraduatestudentsfromacrosstheUnitedStates.IreturnedthenextsummertoBeijingNormalUniversity.
Westudiedreasonablyhard,andhadtheprivilegeofworkingwithmanytalentedprofessors,someofwhomareheretoday.AsweexploredthiscityandtraveledthroughEasternChina,wehadthechancenotjusttounderstandmoreaboutyourhistoryandyouraspirations,butalsotobegintoseetheUnitedStatesthroughyoureyes.
Overthedecadessince,wehaveseenthebeginningsofoneofthemostextraordinaryeconomictransformationsinhistory.Chinaisthriving.Economicreformhasbroughtexceptionallyrapidandsustainedgrowthinines.China¡¯semergenceasamajoreconomicforcemorefullyintegratedintotheworldeconomyhasbroughtsubstantialbenefitstotheUnitedStatesandtoeconomiesaroundtheworld.
Inrecognitionofourmutualinterestinapositive,cooperative,andprehensiverelationship,PresidentHuJintaoandPresidentObamaagreedinApriltoestablishtheStrategicandEconomicDialogue.SecretaryClintonandIwillhostVicePremierWangandStateCouncilorDaiinWashingtonthissummerforourfirstmeeting.IhavetheprivilegeofbeginningtheeconomicdiscussionswithaseriesofmeetingsinBeijingtodayandtomorrow.
Thesemeetingswillgiveusachancetodiscusstherisksandchallengesontheeconomicfront,toexaminesomeofthelongertermchallengeswebothfaceinlayingthefoundationforamorebalancedandsustainablerecovery,andtoexploreourmoninterestininternationalfinancialreform.
CurrentChallengesandRisks
Theworldeconomyisgoingthroughthemostchallengingeconomicandfinancialstressingenerations.
TheInternationalMoaryFundpredictsthattheworldeconomywillshrinkthisyearforthefirsttimeinmorethansixdecades.ThecollapseofworldtradeislikelytobetheworstsincetheendofWorldWarII.Thelostoutput,paredtotheworldeconomyspotentialgrowthinanormalyear,couldbebetweenthreeandfourtrilliondollars.
Inthefaceofthischallenge,ChinaandtheUnitedStatesareworkingtogethertohelpshapeastrongglobalstrategytocontainthecrisisandtolaythefoundationforrecovery.Andtheseefforts,thebinedeffectofforcefulpolicyactionshereinChina,intheUnitedStates,andinothermajoreconomies,havehelpedslowthepaceofdeteriorationingrowth,repairthefinancialsystem,andimproveconfidence.
Infact,whatdistinguishesthecurrentcrisisisnotjustitsglobalscaleanditsacuteseverity,butthesizeandspeedoftheglobalresponse.
AttheG-20LeadersmeetinginLondoninApril,weagreedonanunprecedentedprogramofcoordinatedpolicyactionstosupportgrowth,tostabilizeandrepairthefinancialsystem,torestoretheflowofcreditessentialfortradeandinvestment,tomobilizefinancialresourcesforemergingmarketeconomiesthroughtheinternationalfinancialinstitutions,andtokeepmarketsopenfortradeandinvestment.
ThathistoricaordonastrategyforrecoverywasmadepossibleinpartbythepolicyactionsalreadybeguninChinaandtheUnitedStates.
Chinamovedquicklyasthecrisisintensifiedwithaveryforcefulprogramofinvestmentsandfinancialmeasurestostrengthendomesticdemand.
IntheUnitedStates,inthefirstweeksofthenewAdministration,weputinplaceaprehensiveprogramoftaxincentivesandinvestments¨CthelargestpeacetimerecoveryeffortsinceWorldWarII-tohelparrestthesharpfallinprivatedemand.Alongsidethesefiscalmeasures,weactedtoeasethehousingcrisis.Andwehaveputinplaceaseriesofinitiativestobringmorecapitalintothebankingsystemandtorestartthecreditmarkets.
Theseactionshavebeenreinforcedbysimilaractionsincountriesaroundtheworld.
Incontrasttotheglobalcrisisofthe1930sandtothemajoreconomirisesofthepostwarperiod,theleadersoftheworldactedtogether.Theyactedquickly.Theytookstepstoprovideassistancetothemostvulnerableeconomies,evenastheyfacedexceptionalfinancialneedsathome.Theyworkedtokeeptheirmarketsopen,ratherthanretreatingintoself-defeatingmeasuresofdiscriminationandprotection.
Andtheyhavemittedtomakesurethisprogramofinitiativesissustaineduntilthefoundationforrecoveryisfirmlyestablished,amitmenttheIMFwillmonitorclosely,andthatwewillbeabletouatetogetherwhentheG-20LeadersmeetagainintheUnitedStatesthisfall.
Wearestartingtoseesomeinitialsignsofimprovement.Theglobalrecessionseemstobelosingforce.IntheUnitedStates,thepaceofdeclineineconomicactivityhasslowed.Householdsaresavingmore,butconsumerconfidencehasimproved,andspendingisstartingtorecover.Housepricesarefallingataslowerpaceandtheinventoryofunsoldhomeshasedownsignificantly.Ordersfoodsandservicesaresomewhatstronger.Thepaceofdeteriorationinthelabormarkethasslowed,andnewclaimsforunemploymentinsurancehavestartedtoedownabit.
Thefinancialsystemisstartingtoheal.TheclarityanddisclosureprovidedbyourcapitalassessmentofmajorU.S.bankshashelpedimprovemarketconfidenceinthem,makingitpossibleforbanksthatneededcapitaltoraiseitfromprivateinvestorsandtoborrowwithoutguarantees.Thesecuritiesmarkets,includingtheassetbackedsecuritiesmarketsthatessentiallystoppedfunctioninglatelastyear,havestartedtoeback.Thecostofcredithasfallensubstantiallyforbusinessesandforfamiliesasspreadsandriskpremiahavenarrowed.
Theseareimportantsignsofstability,andassurancethatwewillsueedinavertingfinancialcollapseandglobaldeflation,buttheyrepresentonlythefirststepsinlayingthefoundationforrecovery.Theprocessofrepairandadjustmentisgoingtotaketime.;
China,despiteyourownmanifestchallengesasadevelopingcountry,youareinanenviablystrongposition.Butinmosteconomies,therecessionisstillpowerfulanddangerous.BusinessandhouseholdsintheUnitedStates,asinmanycountries,arestillexperiencingthemostchallengingeconomicandfinancialpressuresindecades.
Theplantclosures,andpanyrestructuringsthattherecessioniscausingarepainful,andthisprocessisnotyetover.Thefalloutfromtheseeventshasbeenbrutallyindiscriminant,affectingthosewithlittleornoresponsibilityfortheeventsthatnowbuffetthem,aswellasonsomewhoplayedkeyrolesinbringingaboutourtroubles.
Theextentofthedamagetofinancialsystemsentailssignificantriskthatthesupplyofcreditwillbeconstrainedforsometime.Theconstraintsonbanksinmanymajoreconomieswillmakeithardforthemtopensatefullyforthedamagedoothebasicmachineryofthesecuritizationmarkets,includingthelossofconfidenceincreditratings.Afteralongperiodwherefinancialinstitutionstookontoomuchrisk,westillfacethepossibilitythatbanksandinvestorsmaytaketoolittlerisk,evenastheunderlyingeconomionditionsstarttoimprove.
And,afteralongperiodoffallingsavingandsubstantialgrowthinhouseholdborrowingrelativetoGDP,consumerspendingintheUnitedStateswillberestrainedforsometimerelativetowhatistypicallythecaseinrecoveries.
Thesearenecessaryadjustments.Theywillentailalonger,slowerprocessofrecovery,withaverydifferentpatternoffuturegrowthacrosscountriesthanwehaveseeninthepastseveralrecoveries.
LayingtheFoundationforFutureGrowth
Asweaddressthisimmediatefinancialandeconomirisis,itisimportantthatwealsolaythefoundationsformorebalanced,sustainedgrowthoftheglobaleconomyoncethisrecoveryisfirmlyestablished.
Asuessfultransitiontoamorebalancedandstableglobaleconomywillrequireverysubstantialchangestoeconomicpolicyandfinancialregulationaroundtheworld.ButsomeofthemostimportantofthosechangeswillhavetoeintheUnitedStatesandChina.HowsuessfulweareinWashingtonandBeijingwillbecriticallyimportanttotheeconomicfortunesoftherestoftheworld.TheeffectivenessofU.S.policieswilldependinpartonChinas,andtheeffectivenessofyoursonours.
AlthoughtheUnitedStatesandChinastartfromverydifferentpositions,manyofourdomestihallengesaresimilar.IntheUnitedStates,weareworkingtoreformourhealthcaresystem,toimprovethequalityofeducation,torebuildourinfrastructure,andtoimproveenergyefficiency.Thesereformsareessentialtoboostingtheproductivecapacityofoureconomy.Thesechallengesareatthecenterofyourreformpriorities,too.
Wearebothworkingtoreformourfinancialsystems.IntheUnitedStates,ourchallengeistocreateamorestableandmoreresilientfinancialsystem,withstrongerprotectionsforconsumerandinvestors.Asweworktostrengthenandredesignregulationtoachievetheseobjectives,ourchallengeistopreservethecorestrengthsofourfinancialsystem,whichareitsexceptionalcapacitytoadaptandinnovateandtochannelcapitalforinvestmentinnewtechnologiesandinnovativepanies.Youhavethebenefitofbeingabletolearnfromourshortings,whichhaveprovedsodamaginginthepresentcrisis,aswellasfromourstrengths.
Ourmonchallengeistorecognizethatamorebalancedandsustainableglobalrecoverywillrequirechangesinthepositionofgrowthinourtwoeconomies.Becauseofthis,ourpolicieshavetobedirectedatverydifferentoutes.
IntheUnitedStates,savingrateswillhavetoincrease,andthepurchasesofU.S.consumerscannotbeasdominantadriverofgrowthastheyhavebeeninthepast.
InChina,asyourleadershiphasrecognized,growththatissustainablegrowthwillrequireaverysubstantialshiftfromexternaltodomesticdemand,fromaninvestmentandexportintensivedrivengrowth,togrowthledbyconsumption.StrengtheningdomesticdemandwillalsostrengthenChinasabilitytoweatherfluctuationsinglobalsupplyanddemand.
Ifwearesuessfulontheserespectivepaths,publicandprivatesavingintheUnitedStateswillincreaseasrecoverystrengthens,andasthishappens,ourcurrentaountdeficitwilledown.AndinChina,domesticdemandwillriseatafasterratethanoverallGDP,ledbyagradualshifttohigherratesofconsumption.
Globally,recoverywillhaveemorefromashiftbyhighsavingeconomiestostrongerdomesticdemandandlessfromtheAmericanconsumer.
Thepolicyframeworkforasuessfultransitiontothisouteisstartingtotakeshape.
IntheUnitedStates,weareputtinginplacethefoundationsforrestoringfiscalsustainability.
ThePresidentinhisinitialbudgettoCongressmadeitclearthat,assoonasrecoveryisfirmlyestablished,wearegoingtohavetobringourfiscaldeficitdowntoalevelthatissustainableoverthemediumterm.Thiswillmeanbringingtheimbalancebetweenourfiscalresourcesandexpendituresdowntothepoint-roughlythreepercentofGDP--wheretheoveralllevelofpublicdebttoGDPisdefinitivelyonadownwardpath.ThetemporaryinvestmentsandtaxincentivesweputinplaceintheRecoveryActtostrengthenprivatedemandwillhavetoexpire,discretionaryspendingwillhavetofallbacktoamoremodestlevelrelativetoGDP,andwewillhavetobeverydisciplinedinlimitingfuturemitmentsthroughthereintroductionofbudgetdisciplines,suchaspay-as-yougorules.
ThePresidentalsolooksforwardtoworkingwithCongresstofurtherreduceourlong-runfiscaldeficit.
And,criticaltoourlong-termfiscalhealth,wehavetoputinplaceprehensivehealthcarereformthatwillbringdownthegrowthinhealthcarecosts,coststhataretheprincipaldriverofourlongrunfiscaldeficit.
ThePresidenthasalsoproposedstepstoencourageprivatesaving,includingthroughautomaticenrollmentinretirementsavingsaounts.