- The Washington Times - Sunday, March 4, 2007


Treasury Secretary Henry M. Paulson Jr. says the economy is healthy, inflation seems under control and the U.S. should not perceive China as an economic enemy.

Mr. Paulson, who this week makes his third visit to China as Treasury secretary, said in a television interview broadcast it is essential that both countries have strong economic ties. The former head of the investment company Goldman Sachs has said China is moving too slowly in overhauling its currency system and cracking down on copyright piracy. U.S. businesses blame these factors for the soaring U.S. trade deficit with China.

“I would say that our relationship with China is multifaceted, and it’s a very important relationship for the U.S. And I don’t believe we need to make China an enemy,” Mr. Paulson said.

Democrats in Congress have criticized the Bush administration for doing too little to protect U.S. workers from unfair foreign trade practices. Mr. Paulson thinks protectionist barriers in this country would hurt U.S. consumers and make the United States less competitive.

“[China’s] whole economy is developing; their capital markets are not nearly as developed as their manufacturing economy. They’re not reflective of the Chinese economy overall. They’re largely cut off from the global capital markets,” he said.

“But as they reform those capital markets and as they open them up to competition, this will make it possible for them to have a currency that trades in a competitive marketplace. This will help their economy develop in a way [that] it’ll be good for them and good for us, because there will be a bigger market for our exports,” Mr. Paulson said.

After a week in which the Dow Jones Industrial Average posted its worst weekly performance in more than four years, Mr. Paulson said yesterday that he felt good about the economy and discounted the chance of an economic downtown.

“Markets never move in any one direction forever in a straight line. And so I look at it and put it in perspective and say, over the last year, the Dow’s up almost 11 percent, [the Standard & Poor’s 500] up 9 percent, and I’ll take it,” Mr. Paulson said.

The Dow dropped 416 points Tuesday after big declines in China and other countries. The Dow fell 533 points for the week, rattling investor confidence about the state of the U.S. economy.

The sell-off followed comments a day earlier by former Federal Reserve Chairman Alan Greenspan that the economy might slip into recession by year’s end. Weeks ago, the current chairman, Ben S. Bernanke, gave Congress a mostly upbeat assessment of the economy’s prospects.

“Clearly, no one’s got a crystal ball. So there’s always a possibility that there will be a downturn, always a possibility,” Mr. Paulson said. “But I don’t see it. I think we have a healthy economy in the U.S.

“You know, a year ago, when the growth rates were much higher, I was concerned. I said, ‘Is this going to be sustainable?’ Now I’m looking at it and I’m seeing a situation where it looks like we’re successfully making the transition.

“The consumer’s strong. Exports have been greater than imports for quarters running, and they’re adding to our growth,” the secretary said in an interview taped Friday for “This Week” on ABC.

“We’ve got a very healthy labor market. … Inflation seems to be contained. And what really makes a difference to me is the average worker is now beginning to feel the benefits. Real income is up 2.1 percent for the average American worker over the last year. So I’m feeling good about the U.S. economy.”

On other topics, Mr. Paulson said:

• He opposes efforts in Congress to rein in executive pay. Last week, the head of the House Financial Services Committee and 21 other Democrats proposed legislation to give shareholders at public companies a formal say in executives’ compensation packages.

“What upsets people in this country is pay for failure. And so I think it’s very, very important that compensation be tied to performance,” Mr. Paulson said.

• His talks with Mr. Bush about China usually bring up global warming.

“Almost every time I talk with the president on China, he asks me how we’re doing on the environmental issues with China. Because they’re building one coal plant every week, and a lot of it is with some of the more less-developed technology, and there’s a lot we can be doing to make advances there,” said Mr. Paulson, a former chairman of the Nature Conservancy.

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