WASHINGTON — Treasury Secretary-designate Henry Paulson Jr. said on Tuesday that the U.S. needs “to encourage China to move quicker” in allowing its currency to appreciate against the dollar, but stopped short of saying how he might achieve that goal.
Paulson, a 32-year veteran of Wall Street, said during a Senate Finance Committee confirmation hearing that China has made progress in reforming its currency and banking system, but has not moved far enough.
The nominee also said he would review a once-secret program in which the government gained access to international financial transactions to prevent terrorism, and he backed the administration’s taxation and spending policies.
Members of Congress have been critical of the Bush administration’s handling of China’s currency and trade policies. The officials are frustrated over Treasury Secretary John Snow’s decisions not to label the country a “currency manipulator,” which could potentially lead to trade sanctions at the World Trade Organization.
Critics argue that China’s fixed currency artificially lowers the price of Chinese goods by 15 to 40 percent and acts as an export subsidy, putting U.S. companies at a disadvantage and leading to American job losses and a bilateral trade deficit that hit $202 billion last year. China raised the value of its currency by 2.1 percent in July in a move to change the peg of the yuan to a basket of currencies from just the dollar. It raised the yuan another 1 percent this year, the currency appreciating 3.4 percent, but these are largely seen as symbolic actions.
Paulson, 60, who is expected to be confirmed by the panel and the full Senate, has been the chairman and chief executive officer of Goldman Sachs Group for the last seven years and has had extensive business dealings with the financial community in China.
“I have spent a lot of time in China … and China has made significant progress” in revamping its banking system and currency policies, Paulson said. He said it is not possible for China to reach a freely floating currency that is set by market forces until it has a modern, functioning banking system, and he stressed that the country has progressed in accepting an open capital market system and flexible exchange rate, but needs to move more quickly to restore confidence among the international community.
Sen. Charles Schumer (D., N.Y.), who has cosponsored legislation with Sen. Lindsey Graham (R., S.C.) to impose tariffs on Chinese imports if that country does not let the yuan’s value increase in relation to the dollar, said he “fully and wholeheartedly” supports Paulson’s confirmation. But he pressed the investment banker on China’s slow pace at opening its financial services market, an issue that compelled Schumer to hold up the confirmation of Susan Schwab as U.S. Trade Representative for a time before she was confirmed.
“The best way to get their currency [to float] and allocation of capital in the most rational way is to let foreign companies into their country,” said Schumer. “They are very slow, even though they might agree in principle.”
Schumer asked for Paulson’s “prognosis” on China’s commitment to open up its financial services market by Dec. 11 and what the U.S. plans to do to press the world’s most populous country into opening its market more quickly.
“One thing I see around the world, and it’s an interesting phenomenon, is that every country that has globally opened to economic reform and a market-driven approach has benefited … Yet almost every country has a strong protectionist sentiment,” Paulson said. “There is a strong protectionist sentiment in China. To me, what we have to do, and do it fairly aggressively, is to encourage China to move quickly … because it is in their best interest.”