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Apr 27, 2012, 03.38 PM IST
Ahead of the next week’s Beijing talks, the United States has said China needs to speed up reforms in its state-dominated banking system and correct the value of its currency.
"Financial sector reforms are critical to China’s continued economic growth." US Treasury Secretary Timothy Geithner said in his remarks at the Commonwealth Club of California on Thursday.
"If China’s state enterprises want to be treated like commercial enterprises by the rest of the world, they need to act more like commercial enterprises, including by paying market-based dividends to their shareholders and making their corporate governance and finances less opaque," the Treasury Secretary said.
"While we welcome the reforms to China’s exchange rate system, the process of correcting the misalignment of the exchange rate remains incomplete, and the Chinese currency needs to appreciate further against the dollar and the other major currencies," he said.
Geithner along with the Secretary of State, Hillary Clinton, travel to China next week for the Strategic and Economic Dialogue.
"China’s financial system is still dominated by large state-owned banks, who favour lending to large state enterprises, with comprehensive controls on deposit interest rates.
"This system limits the returns to savers to below the rate of inflation, forcing them to save excessively to achieve their financial goals and insure against life’s risks.
"This both limits consumption and starves China’s most innovative firms and sectors of capital, despite massive domestic savings," he said.
"...In a step in the right direction, China launched a pilot program last month in Wenzhou to allow new private lenders to lend to private enterprises," he said.
Geithner said to promote a more efficient financial sector and more efficient financial intermediation, interest rates will need to better reflect market forces.
"Raising the ceiling on deposit rates will also allow Chinese households to earn a higher return on their savings, both increasing their income and reducing their need to save, thus increasing their ability to consume goods and services, including from the United States," he said.
Tags: US Treasury Secretary, Timothy Geithner, Beijing, United States, China, Financial sector, Commonwealth Club, Secretary of State, Hillary Clinton, Strategic and Economic Dialogue, domestic savings
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