US urged to work with China on banking, trading systems

The US should cooperate with China to strengthen the global trading and banking systems, a former US undersecretary of State told a US-China business forum.

"We have to identify the areas where countries can work together to strengthen trade opportunities," Robert Hormats, the former undersecretary of State for Economics, Business and Agricultural Affairs, told the forum presented by Peking University's Guanghua School of Management at New York's Harvard Club on May 9.

Hormats, who served on Henry Kissinger's National Security Council during then-President Richard Nixon's historic 1972 visit to Beijing, said establishing a more efficient investment system in China is "essential" for both parties to reap the benefits of their mutual association.

"The big thing is how we strengthen the global trading system and the global banking system by constructively working together," Hormats said.

He had this caution: "We have to be sure that what we are doing is not adding friction between two countries. It's a consultative process."

In a session titled "A Tale of Two Finances", Qiao Liu, finance professor and assistant dean at Guanghua School of Management, said the pitfalls of the Chinese financial system include a "largely inefficient" allocation of finances and an over-reliance on the banking sector.

Hormats attempted to clarify the US' view of the Trans-Pacific Partnership, a proposed expansion of the 2005 Trans-Pacific Strategic Economic Partnership Agreement to manage trade, promote growth, and regionally integrate the economies of the Asia-Pacific region.

Washington is not trying to contain China through the trade agreement, he said. The proposed pact initiated by the Bush Administration was "never meant to be a containment policy of China. It was meant to try to have one seamless system of trade". Most of the countries in the discussions "have more trade with China than with the US, anyway," he said.

Adding China to the talks would have further complicated efforts to get the other nations on board, he said. "There would have been more controversy in the US Congress to have a free trade agreement with China", when negotiations with other nations were already ongoing, he said.

Hormats said that China will buy into the need for financial reform as its ties to the global marketplace deepen. "Progress has been made — not as far as some people would like, but some progress has been made," he said. "As China has a greater stake in the system it recognizes it has responsibility in the system."

The US only began to pursue a policy of fiscal responsibility aggressively in the mid-1940s, following the end of World War II, he said. "Now we have a new world with new players and we have to take the system that has worked quite well that has sound principles and make sure that other countries have an interest in strengthening that system, because it is in their own interest," he said.

Hormats said that before Nixon's Beijing visit in 1974 the US had no trade, formal diplomatic communication or commercial relationship with China. Underlying the discussions was a sense that trade ties were not a priority for China, he said.

Robert Hormats, the former US Under Secretary of State for Economics, Business and Agricultural Affairs, addresses a China-US Business Forum resented by Peking University's Guanghua School of Management at New York's Harvard Club on Friday. [Michael Barris / China Daily]