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5/5/2020 Remarks by Under Secretary Nathan Sheets at the Center for Strategic & International Studies U.S. DEPARTMENT OF THE TREASURY Press Center Remarks by Under Secretary Nathan Sheets at the Center for Strategic & International Studies 4/29/2015 As prepared for delivery WASHINGTON - It’s a great pleasure to be here among so many proponents of economic engagement with China. I know many of you have devoted a good deal of your careers to this endeavor. In particular, Matt, the work that you and CSIS have done over the years has been enormously helpful as we try to improve our strategies and tactics for engaging with China bilaterally and multilaterally. In that context, I will focus my remarks today on an important mechanism for this engagement, the Strategic and Economic Dialogue (S&ED). Around this time of year, the question we are asked most often about the S&ED is: “When is it going to be held?” And we usually say – as I will today – that we will announce the dates later. But here’s a more accurate answer: “The S&ED is actually held every day!” In reality, the S&ED is much more than just two days of meetings in early summer. It’s not an event, but rather a mechanism. A mechanism for managing and building the relationship between the world’s two largest economies, and it’s powered by day-in and day-out interactions. So, as I speak about the S&ED, I hope it will be clear that I am really talking about the ongoing functioning of our underlying relationship. Let me start with a basic question: Why do we need an S&ED? First, because the stakes are high. Together, the United States and China account for a third of global GDP and 40 percent of recent global growth. We have an enormous stake in each other’s economic performance. And we each have a strong interest and a joint responsibility to pursue policies that support the global economy and uphold the global economic and financial architecture. Second is the complexity of the issues and the breadth of the players, policies, and interests involved on both sides. For example, China has taken approaches on a number of trade and investment issues that are at odds with globally accepted rules of free and open commerce – recent examples include regulations for ICT equipment purchases by the banking sector and concerns regarding China’s enforcement of its anti-monopoly law. Such cases help illustrate why this work is so challenging and why it is so important. To underscore the role of the S&ED, the presidents of our countries have named the co-chairs – for both the strategic and economic tracks – “special representatives” with authority to coordinate the agencies in their respective governments. This level of presidential commitment and empowerment is unique among our bilateral dialogues. A Look Back As many of you know, the economic track of the S&ED evolved from the Strategic Economic Dialogue – the SED – that former Treasury Secretary Hank Paulson initiated in 2006. But let’s begin by looking back at how we framed our economic engagement with China even earlier, in the years before the SED. President Carter and Deng Xiaoping created the U.S.-China Joint Economic Committee soon after the establishment of diplomatic relations. It was initially chaired by the Treasury Secretary and a Chinese Vice Premier and designed to serve as the primary mechanism for coordinating economic relations. At first, the JEC agenda was broad. In 1982, for example, it included proposals for a bilateral investment treaty and for what became the Joint Commission on Commerce and Trade, or JCCT. Over time, however, the JEC evolved to concentrate mostly on financial issues, while the JCCT covered commercial issues. Trade policy was handled in the WTO accession negotiations, and then increasingly added to the JCCT agenda. As our relationship grew, so did the modes of engagement. By the mid-2000s, the U.S. government had dozens of bilateral dialogues with China, many of them with an economic focus. But there was no overarching mechanism for ensuring that the right participants across our respective governments were at the table, or for addressing the economic challenges in our relationship. In his new book, Secretary Paulson writes that in creating the SED he “focused less on particular policies than on the process itself: what was the most efficient way to build trust and get things done, how to concentrate on shared interests and avoid getting bogged down by ad hoc disputes.” The SED held its first meeting in December 2006 and met twice a year through the end of 2008. In October 2008, a number of thoughtful experts – including a CSIS task force co-chaired by our moderator today – analyzed the modalities of U.S. economic diplomacy with China and other Asian countries. These experts offered valuable recommendations to the incoming administration. The Obama Administration chose to broaden the SED, adding the strategic track so that it became the Strategic & Economic Dialogue. As a “whole of government” dialogue, the S&ED has proven to be a powerful tool for engaging across the array of complex issues in our relationship – from trade and investment, to cybersecurity and pandemic response, to development finance and climate change. We have seen some notable successes, including last year, as the S&ED brought together foreign affairs, energy, and economic agencies on both sides to advance our work on climate change and clean energy cooperation. The Functioning of the S&ED Of course, the ultimate test of the S&ED’s value is not the structure of the dialogue but the quality and results of the interactions. So, how has the S&ED worked in practice? As I noted earlier, a key ingredient of the S&ED is the work that is done on a regular day-in and day-out basis. Notably, Secretary Lew frequently interacts with his counterpart, Vice Premier Wang Yang. The Secretary visited Beijing last month and speaks regularly with the Vice Premier by phone. They discuss not only bilateral issues but also global economic developments and broader strategic issues. Secretary Lew also interacts frequently with other Chinese leaders, such as Finance Minister Lou and People’s Bank Governor Zhou. https://www.treasury.gov/press-center/press-releases/Pages/jl10039.aspx 1/3 5/5/2020 Remarks by Under Secretary Nathan Sheets at the Center for Strategic & International Studies And the frequency of interaction increases as we go down the line. I’ve spoken with my Chinese counterparts many times in the last month, and our S&ED team talks with their colleagues at the Ministry of Finance essentially every day. Indeed, our S&ED group may be the most over-worked team at Treasury. Given the time difference, their job requires literally an around-the-clock schedule – 12 hours of work for DC and 12 hours of work for Beijing. The daily interaction of our attaches in China and by other agencies that participate in the S&ED process is also significant. The relationships among American and Chinese officials at all levels – forged by working together in the framework of a common mandate – have helped us better understand each other’s perspectives, challenges, and goals. We have differences that still divide us, but over time we have been working to build up the level of trust needed to work through difficult problems. These relationships have proven to be indispensable. For example, the global financial crisis presented acute challenges to the U.S. and Chinese economies, and highlighted the importance of our working together. It also called into question the U.S. financial model in the eyes of many in China, and threatened to weaken Chinese reformers. Premier Wen publicly expressed concern about China’s dollar holdings. At the 2009 S&ED, which I attended as the Fed’s international director, Treasury Secretary Geithner, Fed Chairman Bernanke and NEC Director Summers, discussed with China’s leaders some of the lessons learned from the Great Recession and the Administration’s policy responses. There were similar conversations between U.S. and Chinese financial officials at all levels, drawing on the relationships and trust that we had established. The episode I just described suggests an answer to another question that has often been asked about the S&ED: Is it bringing the right people together? This is admittedly a challenge given the differing structures in the U.S. and Chinese governments. Designating the S&ED co-chairs as special representatives of our presidents is not quite a magic wand. But it has given them and their staffs authority to convene a broad range of agencies within each government and to solicit their responses on policy issues. This is especially important given that Chinese ministries report to several different vice premiers. The convening authority of the S&ED also helps us set priorities. On each side, there is a spirited yet collaborative process in which agencies collectively determine priorities for the S&ED. The result is more focused engagement on both sides. Most of you have seen the end product of the S&ED negotiations: a joint fact sheet with dozens of outcomes. To my knowledge, the S&ED is the only bilateral dialogue between the United States and China that has always negotiated concrete outcomes in writing. This is a painstaking process that takes months of effort – and culminates in bleary-eyed 2 a.m. negotiating sessions on the eve of the formal meetings. But it disciplines our discussions, helps us focus on concrete objectives, and ensures accountability for what has been agreed. Agenda and Accomplishments With the broad reach of the S&ED and the relationships it has helped us build with economic policymakers and regulators, we’ve been able to successfully tackle important mediumterm issues and also deliver immediate benefits to stakeholders here in the United States and in China. For example: In each S&ED, China has made commitments that are helping to accelerate and shape macroeconomic reforms that will shift more income to Chinese households and help alleviate the economic imbalances and trade distortions that ultimately harm workers here in America. One important commitment that China has made is to significantly increase the transfer of SOE profits to the central government budget, where it can be used to augment social welfare spending or fund education. Exchange rate adjustment and China’s move to a more market-determined exchange rate is a critical part of these reforms. Since 2010, the RMB has appreciated by about 30 percent on a real, trade-weighted basis. At last year’s S&ED, China committed, for the first time, to reduce intervention in the foreign exchange market. China’s intervention has in fact declined significantly since the last S&ED, although the real test will come when the market again pushes for RMB appreciation. And much work remains to be done for China’s exchange rate to become fully market-determined. At a late-night negotiating session during the 2013 S&ED, we reached a breakthrough regarding a proposed bilateral investment treaty that had been discussed since the early 1980s. The understanding was that the BIT would cover all phases of investment, including the market access phase, and all sectors of the Chinese economy, except for a set of limited and transparently negotiated exceptions (the so-called “negative list”). Such an agreement could be a game changer in terms of unlocking new opportunities and leveling the playing field for U.S. firms and investors. The S&ED will continue to support the BIT negotiations and investment liberalization. Improving the business climate and promoting the rule of law, including strengthening regulatory transparency, have been areas of constant focus. In last year’s S&ED, China affirmed that the objective of competition policy is to promote consumer welfare and economic efficiency, not to boost individual competitors or industries. This outcome, along with further engagement and a JCCT commitment on China’s enforcement of its Anti-Monopoly Law, is benefitting U.S. companies doing business in China. The actual S&ED meetings are like no other U.S. bilateral dialogue. On one side of the table are members of the U.S. cabinet and on the other side, members of the Chinese cabinet. The discussion here leverages the day-in and day-out work of the preceding months. In last year’s S&ED, six cabinet-level secretaries traveled to Beijing, and nearly 40 U.S. and Chinese government agencies and institutions participated in the economic track. The S&ED culminated in capstone meetings with President Xi and Premier Li. The U.S. and Chinese principals were committed to addressing not only the challenges that exist in our relationship, but also to finding new areas of cooperation. This was perhaps best exemplified by a joint session on climate change, which brought together participants from both the strategic and economic tracks. At Beijing’s Diaoyutai State Guest House, senior American and Chinese officials laid important groundwork for the joint announcement on climate change that was reached by our respective presidents in November. Current Priorities This year, the relationships and open communication developed in the S&ED will again play an important role in paving the way for the meeting of our presidents in September. Let me just briefly highlight several issues of particular importance: First, on climate change, we will seek to build on the momentum established by the recent agreement between our presidents. We look forward to continuing to facilitate cooperation on climate change between the United States and China to create favorable conditions for a climate agreement in Paris in December. Second, you have no doubt read about China’s new regulations regarding “secure and controllable” information and communications technology. Creating a fair and open environment for innovation and trade in technology products – while addressing cybersecurity concerns in a smart way that is consistent with global best practices – is a key part of our conversation this year. China’s recent suspension of its ICT rules in the banking sector is a promising development, but we need to continue to work on this issue. Third, we will continue to advocate for further exchange rate reform, building on the commitment last year to reduce foreign exchange intervention as conditions permit, as well as for measures to increase the transparency of China’s reserve holdings and foreign exchange market operations. We also hope to see further moves toward domestic financial sector https://www.treasury.gov/press-center/press-releases/Pages/jl10039.aspx 2/3 5/5/2020 Remarks by Under Secretary Nathan Sheets at the Center for Strategic & International Studies reform and interest rate liberalization, as well as prudent steps to liberalize China’s capital account and promote greater integration with international financial markets. And finally, a central goal of the S&ED has always been to support China’s emerging role in the global economic and financial architecture, and to strengthen its sense of ownership of and responsibility for the international system. As Secretary Lew said recently in San Francisco, “[t]he United States welcomes China’s growing involvement in the global economic architecture, and as China assumes a more significant role on the international stage, it falls on China to assume more significant responsibilities.” China has announced a number of international initiatives recently, including the proposal for an Asian Infrastructure Investment Bank. We agree that there is a need for additional infrastructure investment in Asia. And as President Obama said yesterday, China’s willingness to put capital into infrastructure development around the region is a good thing, and should contribute to regional economic growth. The United States welcomes new additions to the international development architecture, including the Asian Infrastructure Investment Bank, provided that these additions complement existing international financial institutions and share the international community’s strong commitment to genuine multilateral decision making and ever-improving lending standards and safeguards. These standards and safeguards are designed to foster sustainable development by curbing corruption, preventing environmental damage, and ensuring protection of both workers and affected communities. We will continue to engage directly with China and other countries to provide concrete guidance on how the AIIB can adopt and implement highquality international standards. This ties to a broader point. At a strategic level, we would like to see China contribute more – not less – to addressing regional and global challenges. This is why we will work with China to support strong, sustainable, and balanced global growth; augment and extend an open and rules-based trade and investment regime; and engage on norms for cyberspace. These are all areas where cooperation between our two countries supports global prosperity – areas that will continue to put the S&ED to the test. Thank you. ### https://www.treasury.gov/press-center/press-releases/Pages/jl10039.aspx 3/3
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