United States pushes China to boost consumption to spur world economy

The Obama administration urged Chinese leaders to move away from an exports-driven economy and embrace one that thrives on consumption, during the first of two days of talks between the two countries.

President Obama, Treasury Secretary Timothy Geithner and other Cabinet officials told Chinese leaders that the structure of the U.S. economy has “changed fundamentally” because of the global recession and urged China to adapt, Treasury officials told reporters.

More Americans are saving “and the Chinese economy needs to adjust to that to promote homegrown growth, particularly growth that’s led by household consumption,” said David Loevinger, the senior coordinator for China affairs at the Treasury Department.

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Loevinger said that Chinese leaders, including Vice Premier Wang Qishan, didn’t disagree with the Obama administration’s push for a Chinese economy less reliant on exports. Those changes are needed for a more stable U.S. and global economy, U.S. officials said.

“There was notable agreement that the world has changed and we’re not going back to 2006, 2007, and that if China wants to meet its growth targets ... it’s not going to be able to grow by exporting to the U.S. [and] as far as we can tell, to the rest of the world,” Loevinger said.

Geithner and Secretary of State Hillary Rodham Clinton are leading the U.S. delegation during the two-day economic summit, while China’s team is headed by Qishan and State Councilor Dai Bingguo.

Obama, in an opening speech, said that the relationship between the two countries is as “important as any bilateral relationship in the world” and will shape the 21st century.

“That reality must underpin our partnership,” Obama said.

While he said both countries must work together to end the global recession, he also pressed China to increase its consumption. A more sustainable economic foundation will come from Americans saving more and Chinese spending more, he said.

“Because just as China has benefited from substantial investment and profitable exports, China can also be an enormous market for American goods,” Obama said.

Still, officials from both countries stressed their cooperation in staving off a global depression.

“Thanks to the policy measures adopted by the U.S. government, the U.S. financial markets are already stabilizing and its new economy is showing signs of dawning,” Qishan said Monday.

The talks will have an increased emphasis on the countries’ strategic ties than in past years, when the focus was solely on their economic relationship. The discussions, regularly held twice a year, had been known as “Strategic Economic Dialogue,” but the title was changed this year to the “Strategic and Economic Dialogue.” Another new aspect is the inclusion of the secretary of State. During the Bush administration, Treasury Secretary Henry Paulson was the top U.S. official in the meetings.

Obama’s remarks Monday largely avoided historically contentious issues between the two countries.

He didn’t mention the record U.S. deficits, which have prompted inflation concerns among the Chinese, the largest foreign creditor to the U.S. government. While Obama and Geithner called on China to increase its consumption, they didn’t publicly repeat past calls for China to revalue its currency. In past meetings, Paulson blamed China’s policy of devaluing the yuan for stanching Chinese consumer demand for U.S. goods.

When asked about any U.S. pressure on China about the yuan’s value, Loevinger only noted that there was a “full discussion of a range of economic and financial issues.”

“We talked about China’s exchange rate policies, they talked about their desire to reform the international monetary system, and I’ll just leave it at that,” Loevinger said.

U.S. officials took pains to stress that the two countries were working together to fix the economy, said Daniel Rosen, a visiting fellow at the Peterson Institute for International Economics and former senior adviser to the White House National Economic Council.

Even on consumer demand, the one major economic issue on which Obama pressed China on Monday, the president had little to gain immediately, Rosen said.

“Overwhelmingly, it’s a Chinese internal matter,” he said. “Nothing is going to be asked and delivered in this dialogue. But [Obama’s speech is] demonstrating that the U.S. side understands that it is as critical a question as anything.”

Obama focused on other interests shared by the two countries: finding solutions to climate change, stopping nuclear weapon proliferation and confronting extremists and other non-state threats.

“All of these issues are rooted in the fact that no one nation can meet the challenges of the 21st century on its own, nor effectively advance its interests in isolation,” he said. “It is this fundamental truth that compels us to cooperate.”

Obama did raise U.S. concerns with China on its human-rights record.

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He said that the countries could begin a new push to end suffering in Darfur and the war in Sudan, which has economic ties with China.

Obama also urged China to allow free speech by its minorities.

“Just as we respect China’s ancient culture and remarkable achievements, we also strongly believe that the religion and culture of all peoples must be respected and protected, and that all people should be free to speak their minds,” Obama said. “That includes ethnic and religious minorities in China, as surely as it includes minorities within the United States.”