BEIJING (AP) — Treasury Secretary Henry M. Paulson Jr. urged Chinese leaders yesterday to press ahead with financial market reforms but acknowledged the U.S. credit crisis might make them hesitant.
Mr. Paulson met with Chinese President Hu Jintao and Beijing’s new point man on trade ties with Washington, Wang Qishan. Mr. Paulson said he assured them that Washington is resolving its credit crisis but cautioned it was not finished and there would be “more bumps in the road.”
“There is no doubt that what is happening in the U.S. markets clearly has to give the Chinese pause,” Mr. Paulson told reporters.
Mr. Paulson, who was in Beijing as part of a U.S.-China dialogue on trade and other contentious issues, said the two sides discussed financial reform, though he declined to say what Chinese officials said.
He said Beijing must open its financial markets wider to competition if it wants to continue to develop.
“They have headed down the path to a market economy, and capital markets are a very powerful force for good,” he said. “Until they have efficient, competitive capital markets, their people will not receive adequate returns on their savings.”
Prime Minister Wen Jiabao, China’s top economic official, declared himself “deeply worried” last month about the market turmoil, the decline of the dollar and the direction of the U.S. economy.
Chinese banks hold risky U.S. mortgage-backed securities and have set aside reserves to cover losses. Economists have cut growth forecasts for China due to slumping U.S. demand for imports.
Washington’s interest-rate cuts have complicated Beijing’s effort to cool its fast-growing economy by raising its own rates.
Economists say that if the gap between rates in the two countries grows too large, it could draw foreign money into China, fueling inflation that is heading toward 12-year highs.
Mr. Paulson, the highest-ranking U.S. official to visit Beijing since violent protests in Tibet and China’s crackdown there, said he appealed for a peaceful resolution.
“I expressed our concerns about the violence and urged a peaceful resolution through dialogue,” he said.
Mr. Paulson was in Beijing to prepare for the next meeting in June of the U.S.-China Strategic Economic Dialogue. The process was launched in 2006 to address tensions over China’s soaring trade surplus and currency controls and to deflect pressure from U.S. critics for punitive action. It has been broadened to include talks on cooperation on energy and the environment.
Mr. Paulson and his new counterpart, Mr. Wang, first met in the 1980s when the American worked for Goldman Sachs Group Inc. and Mr. Wang was president of China Construction Bank, a major state-owned lender.
Mr. Paulson said he considers Mr. Wang a friend, a relationship that he said would help in making a smooth transition from his predecessor, retired Vice Prime Minister Wu Yi.
“We know each other very well,” he said. “When the inevitable tensions arrive, we can get on the phone and talk.”
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