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Q&A with Ambassador Jon Huntsman (Part I)

us abarsidorThe Fourth Annual China Town Hall program, held on October 18, 2010, featured a live webcast with Jon. M. Huntsman, Jr., U.S. Ambassador to China in conversation with Stephen A. Orlins, president of the National Committee

Orlins: Let me turn to some of our venues, and ask you some of questions they presented us.  This one is from Jenny Lee in Boston, Massachusetts.  'What do you think is an ideal end to the currency war between the United States and China?  Can our two countries achieve a win-win solution?'

Huntsman:  Well, every time I speak about the currency issue,

my job is threatened by the people who manage this issue out of the Treasury Department so I will leave the policy discussion to the folks at Treasury and my friend, Secretary Geithner.

Ultimately, the marketplace is going to determine where the renminbi is properly valued. And, the Chinese have already made the fundamental policy call to reform their exchange rate mechanism.  We saw that many months ago. And, we've seen a very slight appreciation over the last few months.  Annualized, it roughly is about one percent per month. If you were to sort of forecast where it would be, going forward, and this is going to be a very important part of China's rebalancing here, their own economic approach to rebalancing their economy which is to focus less of the largest export machine that has ever been created in the history of humankind and focus more on an expanded domestic marketplace, where consumers have more of a choice, where more imports are allowed into the marketplace, a properly valued currency is going to be a very, very important part of this whole economic transformation. I don't know when we are going to get there, but we've all seen examples of other countries in the region that had currencies that were inappropriately valued, over time they were brought into market value based upon where the market took the economy and with it we typically see an up-tick in U.S. exports into those markets. You can find two or three markets here in the region where we've seen that happen in the last 20 to 30 years

So, I do believe as the currencies become more properly aligned with market realities we are probably going to see a couple of things happen. We are likely to see more in the way of Chinese investment outward to the rest of the world including the United States. I think we are already seeing the front end of that. And, we are likely to see an uptick in exports from the United States, particularly amongst small and medium size corporations where now they are economically locked out of the marketplace for maybe market access reasons, maybe because the currency is inappropriately valued here. I think we are going to see more in the way of opportunities for those firms here in China market as China makes the transition from almost exclusively an export platform to more of a consumption platform. And with it, we are going to see more jobs created in the United States. I think a very important thing, a long-term more critically important thing in today's very difficult economic environment. But, it really does come down to a currency that is properly valued. The policy decision has been made. It's moving in a helpful direction and as the Treasury Department has said, 'Everything is going to be based on the results.' How quickly we see it moving toward proper valuation. So, a lot of eyes are on the renminbi and will be for some time.

Orlins: Related question from Alex Debreezes in Kalamazoo, Michigan. 'How does the United States' debt affect our relationship with China?'

Huntsman: We have too much debt.  And, we you have debt you are going to have buyers who have debt. As of right now, China carries a great deal of those debt instruments, probably just under two trillion dollars all valued. If China was not an investor in those debt instruments, someone else would be an investor in that debt. It is hard to say where that balance is going. Again, debt is pretty much offered in a free environment. People are going to buy. People are going to sell it. I am not sure that you can ever make any kind of predictable forecast in terms of where China's debt instrument is going to be, vis-à-vis, long term.  Japan holds a lot of our debt. There are several other countries that hold a lot of our debt. We have too much of it. I think that is the issue that U.S. policy makers need to come to grip with. Meanwhile, you are going to find all kinds of countries that invest in our debt. I am not sure that it has an overwhelming impact on our day-to-day discussions with respect to trade policy issues. In other words, I haven't sat in a trade negotiation where someone from China has said 'We want it this way because we happen to hold x amount of your debt.' That has never played into our trade discussions as some might think. It is part of today's narrative that because China holds as much as debt as it does, that they somehow use that at the negotiating table. I have yet to see that.

Orlins: The question really extends to the U.S. body politic. With China's reserves growing at two billion dollars a day, so by the time we go to bed tonight, China's reserves are at the same rate as the third quarter of 2010, it will have increased two billion dollars, does the U.S. body politic have the patience to not impose some kind of sanction against China because the renminbi not revaluing fast enough?

Huntsman: That's part of our political debate today. Congress is, obviously, looking at it. They have introduced legislation to that effect. And, the executive branch and the legislative branch are both discussing the best way to proceed. And, I think that plays out in the election and beyond. Again, everything will be dependent on how quickly China revalues its currency. We have to remember as well, as part of this economic transformation that China has embarked upon, and if you look at the next five-year plan that was just deliberated over the last week, a lot of spending is going to take place here in China in terms of making that transformation complete from an export platform to a consumption based platform. When you look at housing affordability, when you look at healthcare reform, when you look at pension and retirement programs, when you look at taking 800 million farmers and transitioning into a world where only 200 million farmers are needed you are looking at some pretty remarkable draw-downs in terms of the overall expenses that will be needed to make this transition complete.

So, it is very hard to take a snapshot in time of where the numbers are today, frustratingly in terms of a surplus here in China, vis-à-vis, where we sit in the United States. I think you have to look over the longer term to see what this transition is likely to mean domestically here in China, what it is going to mean in terms of their overall reserves, what high reserves may do in terms of inflationary impact here and then what a properly valued renminbi will mean ultimately to greater exports to the United States in the China market. We'll leave it to the economists in the crowd to discuss this one later on. But, there's a lot more to play out in the years ahead as the renminbi becomes properly valued, as China draws-down more of its foreign exchange earnings to take care of many of their domestic needs here.

 About Ambassador Jon Huntsman