U.S. Treasury Secretary Henry M. Paulson, Jr. reviewed progress made under the U.S.-China Strategic Economic Dialogue and outlined his agenda - emphasizing energy and the environment - for the fourth round of semiannual cabinet-level talks next week at the U.S. Naval Academy in Annapolis, Maryland- Carnegie Endowment for International Peace
Jessica Tuchman Mathews was appointed president of the Endowment in 1997. Her career includes posts in the executive and legislative branches of government, in management and research in the nonprofit arena, and in journalism.
She was a senior fellow at the Council on Foreign Relations from 1993 to 1997 and served as director of the Council's Washington program. While there, she published her seminal 1997 Foreign Affairs article, "Power Shift," chosen by the editors as one of the most influential in the journal's seventy-five years.
From 1982 to 1993, she was founding vice president and director of research of the World Resources Institute, an internationally known center for policy research on environmental and natural-resource management issues.
She served on the editorial board of the Washington Post from 1980 to 1982, covering energy, environment, science, technology, arms control, health, and other issues. Later, she became a weekly columnist for the Washington Post, writing a column that appeared nationwide and in the International Herald Tribune.
From 1977 to 1979, she was director of the Office of Global Issues of the National Security Council, covering nuclear proliferation, conventional arms sales policy, chemical and biological warfare, and human rights. In 1993, she returned to government as deputy to the Undersecretary of State for Global Affairs.
Mathews is a director of Somalogic Inc. and a trustee of the Rockefeller Foundation, the Century Foundation, and the Nuclear Threat Initiative. She is also a member of the Council on Foreign Relations, the American Philosophical Society, and the Trilateral Commission.
She has previously served on the boards of the Brookings Institution, Radcliffe College, the Rockefeller Brothers Fund, the Surface Transportation Policy Project, and the Joyce Foundation, among others.
Henry M. Paulson
President George W. Bush nominated Henry M. Paulson, Jr. to be the 74th Secretary of the Treasury on June 19, 2006. The United States Senate unanimously confirmed Paulson to the position on June 28, 2006 and he was sworn into office on July 10, 2006 by Supreme Court Chief Justice John Roberts.
As Treasury Secretary, Paulson is the President's leading policy advisor on a broad range of domestic and international economic issues.
Before coming to Treasury, Paulson was Chairman and Chief Executive Officer of Goldman Sachs. He joined Goldman Sachs in 1974 in the Chicago Office and became a partner in 1982. From 1983 until 1988, Paulson headed up Investment Banking Services for the Midwest Region and became Managing Partner of the Chicago Office in 1988.
In 1990, he was named Co-head of the firm's investment Banking Division, and in 1994 he rose to the position of President and Chief Operating Officer. In 1998, he was named Co-Senior partner, and with the firm's public offering in 1999, became Chairman and CEO.
Secretary of the Treasury Henry Paulson discusses the parallels between the United States and China as each faces new challenges. While the American housing bubble has just burst, China is watching its own inflationary bubble grow. Each country must figure out how to manage these economic cycles.
Secretary of the Treasury Henry Paulson explains that the rise in the price of oil cannot be taken lightly, as its effects can be felt in all sectors of global economies - most dangerously food supply which leads to hunger and famine.
Paulson asserts that the rise in oil prices has been in line with market-wide increases in commodity prices and the forces of supply and demand, not the result of speculation.
Good morning, ladies and gentlemen. My name is Jessica Mathews, the president of the Carnegie Endowment for International Peace. ItÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s a particular pleasure today tointroduce the distinguished secretary of the treasury, Hank Paulson, on the eve of the fourth cabinet-level dialogue of the U.S.-China Strategic Economic Dialogue, which will convene in Annapolis a week from now.The dialogue, as you know, began in 2006 and covers the gamut of important bilateral issues from food and product safety to financial sector reform, transparency, innovation, and, of course, energy andclimate change. The last meeting in December of 2007 launched a 10-year framework on U.S.-China energy cooperation. Mr. Secretary, you are to be congratulated for significantly strengthening the SEDand for beginning to address the critical long-term issues of energy and climate, which are, together, surely among the gravest threats to the world.Our two countries, China and the U.S., account for roughly 40 percent of global greenhouse gas emissions. And working on a bilateral basis to end what weÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢ve called the ÃƒÂ¢Ã¢â€šÂ¬Ã…â€œsuicide pactÃƒÂ¢Ã¢â€šÂ¬ of eachgovernment insisting that the other act first on climate is exactly what we need to be doing. Here at Carnegie, we too have begun to do our bit. As globalization takes hold of so many aspectsof our lives, an international approach is required to tackle the major challenges that confront us. And to do that, weÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢ve decided to try to break the traditional mold of Washington think tanks and to createlasting partnerships with leading scholars in and around the rest of the world. And so weÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢ve embarked on what we have called ÃƒÂ¢Ã¢â€šÂ¬Ã…â€œthe new visionÃƒÂ¢Ã¢â€šÂ¬ of the Carnegie Endowment, to create the worldÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s first global think tank.Building on 15 years of experience in Moscow, we have recently opened new offices in Beijing, Beirut, and Brussels. In China, weÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢ve been honored to have been joined by Zhou Dadi, the formerdirector general of the Energy Research Institute of NDRC. And he will be working with William Chandler here in Washington, who heads our energy and climate work on several important initiativeson how to move forward on both energy and climate policy together. Chandler has ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ and Dadi ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ have been invited by the Chinese national ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ by NDRC to organize a track-two dialogue on U.S.-Chinacooperation, which will be beginning in the next few weeks. ItÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s often the case, unfortunately, that politicians take on only those issues that will come to fruitionwithin their term in office and energy and climate and long-term U.S.-China relations are obviously ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ donÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢t fit in that category. But whoever becomes president next January is going to benefit from a headstart, a very substantial head start on cooperation between our two countries because you, Secretary Paulson, have taken on this tough and important issue and have made the Strategic Economic Dialogueinto a really important venue for advancing U.S.-China relations, a really substantial diplomatic achievement. So we are very honored to welcome you here to Carnegie and look forward to hearing from youabout the prospects for progress next week.Jessica, thank you very much, and thank you to the Carnegie Endowment for International Peace for the opportunity to speak with you this morning.Today, as has been the case each day since the Sichuan earthquake, our thoughts and prayers are with the Chinese people as they work to meet the challenges resulting from this terrible tragedy. AsPresident Bush has said, the United States stands ready to help in any way possible. Our government, our charities, individuals have already donated or pledged over 100 million in goods and services andmoney. We are committed to help China rebuild the devastated area. The U.S.-China economic relationship is complex, broad, and important to both our countriesand to the world economy. Through the ongoing, dynamic, and respectful discussions of our Strategic Economic Dialogue, the SED, the relationship is also growing in a positive direction.I look forward to making further progress on shared objectives at the fourth meeting of the SED next week. This meeting will be the first opportunity for my Cabinet colleagues to collectivelymeet and work with ChinaÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s newly appointed leadership team. We will welcome our new Chinese colleagues and together we will demonstrate that the SED can effectively manage our economicrelationship through a period of leadership transition while laying a course of concrete action to achieve our strategic objectives. In particular, I look forward to welcoming my new counterpart, Vice PremierWang Qishan, in his new role for his country. A critical goal for the 21st century is to get the U.S.-China economic relationship right. At nextweekÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s SED, we will have a robust discussion of our economic relationship, envisioning a future of sustainable economic growth over the next decade.And so the SED meeting next week will focus on five areas. These are: managing financial and macroeconomic cycles, developing human capital, the benefits of trade and open markets, enhancinginvestment, and advancing joint opportunities for cooperation in energy and the environment. The SED has brought progress faster and more broadly on issues important to the U.S. andglobal economy than would have been possible otherwise. Success has come through ongoing collaboration, candid high-level discussions, understanding each otherÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s priorities and objectives andinterests, and surmounting particular bureaucratic interests by working with the Chinese government as a whole. It is clear that our strategy for robust engagement with China ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ intensive dialogue but withresort to WTO dispute settlement and WTO-sanctioned trade remedies if needed ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ is more productive than protectionist policies or legislation.Managing financial and macroeconomic cycles will be our first discussion topic next week. Both the United States and the Chinese economies face current challenges, including adjusting to higherenergy and food prices. The United States is working through a housing market correction and repricing of risk in credit markets. China is grappling with rising inflation and growing internal and external macroeconomicimbalances. ChinaÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s imbalances stem largely from an economic structure that has become too heavily dependent on industry, investment, and exports. This has led to a growing trade surplus, high energyuse, environmental degradation, and rising domestic inequality. Continued exchange-rate reform is among the macroeconomic and structural measures Chinashould take. Exchange-rate reform will be critical in meeting ChinaÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s short- and medium-term challenges. Greater exchange-rate flexibility will make Chinese monetary policy more effective incontrolling inflation. It will help bring about the structural economic shifts China needs to reduce its imbalances. Despite the progress that China has made, including almost 20 percent renminbiappreciations against the dollar since July of 2005, continued movement and greater flexibility are still needed. Increasing the pace of reform of ChinaÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s financial services markets is also important to furthersupport the growth and development of the Chinese economy. A major contributor to the structural imbalances is a savings-rate challenge in each of oureconomies. In the United States, our savings rate is too low. In China, it is too high. In order to effectively deal with this issue, we must address how to adequately provide for our aging populations,including the role of private and public insurance and financing for social services such as health care and retirement. Inadequate social safety nets in China lead to high levels of precautionary savings andare a major contributor to low domestic consumption and the large and rising trade surplus. In the United States, rising healthcare costs and our aging population are creating public policychallenges. Restraining the growth of healthcare costs and reforming our Medicare and Social Security programs are critical to prevent a looming fiscal problem. These steps are necessary and importantmeasures to help us address our low savings rate and the resulting imbalances. Increased openness to competition and international trade is critical for continued economicgrowth in both our nations and for the future prosperity of our people. We will discuss steps that we can take to ensure that our countries, and the world economy, remain open to trade.We will examine how we can promote mutual interests, including enhancing innovation and developing and protecting intellectual-property intensive industries, improving food and product qualityand safety, stopping the global trade in fake products, furthering transparency and the rule of law, and supporting green energy and environmental product markets.We will build on previous progress, such as the civil aviation agreement that resulted in a new nonstop flight between Atlanta and Shanghai this past March, and a new group leisure travel agreementthat is estimated to bring up to 100 million Chinese travelers to the United States over the next 15 years, creating jobs and growth here at home.AmericaÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s policy of open investment is one of our predominant economic strengths. Foreign direct investment stimulates competitiveness, growth, jobs, and productivity. At the fourth round of theSED, we will discuss the best way to promote and protect bilateral investment and counter protectionist pressures. We will also discuss the concerns of American companies that ChinaÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s investmentregulations are opaque and seem in many ways to be designed to favor ChinaÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s national champions. The value of the SED to economic issues is clear. The SED also increases U.S.-Chinacollaboration on security and other key international issues, making our overall relationship stronger and broader. Finally, next week we will also focus on energy security and environmental sustainability. I willelaborate further on that today. The U.S. economy faces significant headwinds from a number of factors including rising energyprices. Gasoline, food, and many common household items have become more expensive for American families. There is an urgent need for U.S. energy policies to significantly evolve to ensure U.S. energy security.Since the beginning of the Bush administration, the United States has spent nearly $18 billion to research, develop, promote, and bring clean and efficient technologies to market. We continue todevelop new strategies; last December, President Bush signed the Energy Independence and Security Act, which responded to his 20-in-10 challenge to improve vehicle fuel economy and increase alternativefuels. But much more is needed if we are to adequately address our energy security challenges. As the two largest net importers of oil, China and the United States face similar challenges. Wehave a strong and a shared interest in avoiding supply disruptions, increasing energy efficiency, promoting the efficiency and transparency of the global energy markets to the benefit of all oilimporting nations, and expanding the availability and use of alternative energy sources. To power its economic growth, China has become the worldÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s largest coal producer andconsumer. In 2006, it became the second largest purchaser of new vehicles, which is one of the key reasons why China has now become the worldÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s third largest consumer of oil.To find solutions to these shared challenges, the U.S. and China have been working together under the SED to address energy security. We already have an agreement to strengthen cooperation onnext generation biofuels, to increase industrial energy efficiency, strengthen cooperation on the certification of energy efficient products, increase cooperation on nuclear safety, and a joint five-yearcommitment to promote large scale deployment of alternative fuel technologies for vehicles. In conjunction with the International Energy Agency, the IEA, we have also strengthened cooperation onstrategic oil reserves. But to comprehensively address its energy security, China must go beyond these joint efforts.China has made a good start by establishing numerous plans and ambitious goals, highlighted by the 11th five-year plan, for 2006 to 2010, which established aggressive goals to reduce energy consumption perunit of GDP by 20 percent. China has moved towards meeting some of these goals by reducing energy consumption over 3 percent per unit of GDP output in 2007. While I applaud this continued focus andam encouraged by this progress, further results cannot come fast enough. As the United States developed, we found that harnessing market forces, combined with strongregulations and enforcement, were powerful tools to support economic growth. For example, the sulfur dioxide tradable credit system established under the 1990 Clean Air Act has demonstrated how marketdrivenmeasures can cost-effectively reduce pollution. We also learned a costly lesson in the 1970ÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s when we attempted to defy market forces and imposed oil price restrictions. Rather than achieving ourintended result, we experienced winter heating oil shortages, supply problems, rationing, and a reduction in domestic oil and gas investment and exploration. In some cases, we attempted to control outputprices without being able to control input prices, forcing operating losses and large cuts in supply. China, by setting price controls on fuel, is facing similar consequences today ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ as can be seen bypersistent gasoline and diesel shortages throughout the country. The consequences of these policies also extend to the power sector, where price caps on electricity and fuel contributed to nationwide poweroutages during snowstorms this past January and February. The United States learned that price controls interfere with the natural equilibrium of markets to match supply and demand, and lead toshortages. And because market forces can never be completely eliminated, price controls often lead to smuggling and corruption.Indeed, the best way to deal with economic shocks is to allow markets to operate fully and with full information. For oil, information on stocks and reserves is particularly important, and therefore it iscritical that China and all oil producing countries provide information on their reserves to the IEA. In the United States, innovation, coupled with market-based policies and regulations that encourage energyefficiency, lead to technological advances that reduce energy consumption. As a result, the consumer benefits and markets evolve and grow. We also achieve a cleaner environment.The U.S. and China both know that tomorrowÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s economic opportunity requires conserving natural resources today. To focus more sharply on this goal, at last DecemberÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s SED meeting, weannounced the beginning of 10 years of cooperation on energy and environmental issues. Working together on this framework will challenge all levels of government, industry, academia, and nongovernmentalorganizations to find answers to these and many other questions: How do we reduce dependency on oil and increase energy security? How do we better preserve the natural environmentand prevent greenhouse gas release due to deforestation? How do we meet our energy goals? How do we ensure that our water is clean and safe?These questions may be answered differently in the United States than in China. Yet, our approaches to finding answers may be similar ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ to implement proven policies, to educate individuals tomake environmentally sound decisions, and to ensure that companies follow regulations designed to protect human health. Solutions will also require technological breakthroughs and making existing andnew technology affordable by reducing market access barriers. I often hear from U.S. companies that they do not sell their technology to willing Chinese borrowers for fear that their designs and technologywill be stolen. The U.S. exportersÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢ concerns are a significant reason for limited sales of technology-based products. I hear from Chinese government officials that the U.S. technology they need forpollution control is expensive in part due to tariffs and non-tariff barriers. We have a shared interest in resolving these dilemmas, and we can solve them.Since December, we have been adding details to this framework and we will announce the results of our initial efforts at next weekÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s SED meeting. This cooperation will likely bring innovationsthat we cannot yet imagine and expand our relationship in many new ways. We are selecting shared goals, such as reducing dependency on oil. We are defining specific energy targets, such as increasingvehicle fleet fuel efficiency and creating incentives for the development and use of alternative fuels. We are developing action plans for joint projects that will accelerate existing efforts. These action plans willhelp each country identify policy solutions to improve implementation of existing regulations and incentives, and challenge us to develop even more innovative approaches and answers.ChinaÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s leaders go about this in the face of daunting environmental challenges. According to the World Bank, 16 of the worldÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s 20 most polluted cities are in China. Water quality is deteriorating ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ 90percent of all rivers show signs of significant pollution and 62 percent of water is unsuitable for fish. And although the Chinese government has established laudable environmental protection goals,monitoring and enforcement of environmental regulations remains very weak. Conservation is one area where both the United States and China have made significant progressin safeguarding the environment. In the United States, through a variety of federal, state, and local agencies we conserve, protect, and manage natural resources. Private industry and a vibrant non-profitsector further support these efforts. I applaud ChinaÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s recent steps and would encourage further progress to develop legislation thatwould more effectively protect natural habitat. I am also encouraged to know that China is adding 2 million hectares of forest per year to increase forest coverage by 6 percent to combat deforestation.According to official Chinese projections, by 2010, 16 percent of ChinaÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s total territory will be natural reserve areas, and 90 percent of the remaining typical forest and wetland ecosystems, and key nationalwildlife will effectively be protected. The environmental aspects of the 10-year framework build upon a solid foundation. We have amemorandum of understanding to combat illegal logging and promote sustainable forest management. And we have launched efforts to help China develop a nationwide program on sulfur dioxide emissionstrading. U.S. and Chinese private-sector companies are also helping to create the green economy. Whether it is the public sector or the private sector, this work is aspirational.Recent meetings between U.S. and Chinese leaders have shown great promise for collaboration on green buildings, energy efficiency in infrastructure projects, and creating "Eco-cities." China adds 2billion square meters of new construction every year and has 40 billion square meters of existing buildings that need retrofitting. Chinese leaders know that the development of green buildings is a critical need.As we establish this cooperative framework, my friends in China often ask what can be done about ChinaÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s immediate energy and environmental challenges. My answer is that China, given itscurrent economic growth and prosperity, can leapfrog the United States and the rest of the world in deploying and using advanced energy and environmental technology.Adopting advanced technology will increase ChinaÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s energy efficiency and reduce the emissions of greenhouse gases and harmful pollutants. But bringing this technology to China is hindered by thetariff and non-tariff barriers that China places on environmental goods and services. A high priority should be eliminating barriers on products, goods and services that can improve the health and welfare of the Chinese people.For example, there is a water membrane technology available right now. If installed properly, it could help local communities take significant steps towards reducing the pollution entering rivers frompower plants. That means that, within months, some Chinese citizens could have cleaner water. Yet, a tariff of 22 percent on water membranes makes this technology too expensive for many communities.Significant opportunities exists for the United States and China to achieve immediate progress and make long-term strides towards energy security and environmental sustainability. Through a 10-yearframework of cooperation, I believe that we have the foundation to meet these challenges in a sustained, collaborative manner.Next weekÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s fourth Strategic Economic Dialogue meeting will move the United States and China even further forward to a stronger economic future. We have kept our economic relationship on aneven keel, even during times of stress. We are building upon a shared vision that is possible because of our cooperation and feasible because of our commitment to the prosperity of our people. Thank youall. I will now take some questions.