Oct 15 2005
US Pressure China for Market Reform
Just read this news article from NYT.
“The Bush administration is expected to present China’s political leaders on Sunday with a sweeping plan to overhaul China’s financial markets and open the country to foreign banks, investment firms and insurance companies.”
Some main points in the proposal:
1. Accelaterating SOE privatization.
2. Fully float currency for trading.
3. Establish independent credit-rating agency.
4. Cleanup messy bank loans.
5. Remove restrictions on FDI in Chinese banks (e.g. Currently, foreign investors are usually prohibited from owning more than 25 percent of a commercial bank, and no single foreign investor can own more than 20 percent, etc.)
“What we tried to do is take a quantum leap in sophistication and scope,” said Timothy D. Adams, undersecretary for international affairs at the Treasury Department.
—I can really appreciate what the administration (or US econ-political policy makers) is trying to accomplish here.
a. I think it is part of the concerted move to force China to open up more at a national infrastructure level (see my other blog and comments).
b. This is much healthier than bickering and second-guessing on the “end games” (the other’s grand strategy of global dominance)
c. The policies are visions the Chinese themselves should have had. If the leadership is a little timid to carry them out, a little external push might just help.
d. The discussions of such visions may provide an environment for other national institutions than politcial apparatus to engage in meaningful dialogues.
e. Hence hedges against political turnovers and forster internal Chinese forces to push reform further.
—How the Chinese government is going to resp0nd is significant in the long run. If there was a visceral rejection, it might hurt the realists in both governments for a long while. However, anything other than such a reaction might be viewed as a sign of collective maturity.
—Among all the demands, I’d think openning up financial market is very much do-able and is critical to China’s long term development outlook.
—Totally floating currency may be something Chm. Greenspan (as he was part of the Snow group) has to think harder about. There is another article on NYT about a 2% higher Yuan is already creating pressure to foreign businesses in China.