US and China planning new world financial system to save themselves from crisis

The United States reiterated its commitment to lowering its burgeoning deficit by 2013. This year it is expected to reach US$ 1.85 trillion.

Excess US spending coupled with low personal savings have contributed to the current crisis, which in turn brought to light the structural problems of the US economy, weakening the US currency.

Beijing and many other countries hold vast reserves and securities in US dollars and want Washington to make sure the dollar remains stable. This is especially true for China whose investments in Treasuries reached US$ 801.5 billion in May of this year.

China's Vice Premier Wang Qishan (pictured with US Treasury Secretary Timothy Geithner) said that Washington must manage its finances in a more sustainable and balanced way. He added that the two countries “will strengthen cooperation to jointly build a strong financial system” to ensure “stability in the two countries and the world at large.”

China’s Finance Minister Xie Xuren is satisfied by US pledges. “Credible steps will be taken by the US to control the deficit,” he said at a press briefing today.

In exchange, China has committed itself to put its own economy in order by stimulating domestic consumption and reducing its reliance on exports.

For decades China’s economy has been based on the mass exports of low cost items. But this was achieved at the expense of workers and the environment. What is more, the United States has accused China of pegging its currency, the yuan, too low against the dollar with negative consequences for both foreign companies and Chinese consumers.

None the less, both sides are satisfied by the talks as evinced by their respective statements.

“The most important thing we achieved today was to agree on this broad framework for policies and reform . . . to help lay the foundation for a more sustainable, more balanced global recovery,” Secretary Geithner said.

Responding to critics who noted that these talks failed to produce any extensive new agreements, US Secretary of State Hillary Clinton said that “laying the groundwork [for closer ties] may not deliver a lot of concrete achievements immediately,” but it does mark an unprecedented level of cooperation.

For experts both the United States and China have come to recognise the interdependence of their respective economies and that both have an interest in making their relationship less combative and more collaborative.

The United States has recognised the need for tougher rules to regulate its financial system whilst China has stated its willingness to open up is domestic financial market, now under tight state control.

The two sides failed to find common ground on climate change; any concrete action will have to wait for the future. They did never the less agree to more bilateral talks before the United Nations meeting on climate scheduled for Copenhagen next December.

But Xie Zhenhua, vice-minister of China’s national development and reform commission, said developed countries had to take the lead in substantially reducing emissions and in committing to technology transfer and financing for industrialising countries to control their own carbon emissions.

To know more about the problems in Sino-US relations, read:

Maurizio d'Orlando, “Chinese yuan set to replace dollar,” AsiaNews, 3 January 2009

Ibid, “Economic crisis: US, China and the coming monetary storm, AsiaNews, 9 December 2008.

Ibid, “G8, toxic securities, US and Chinese addictions,” AsiaNews, 7 July 2009.