Clinton Assures China That U.S. Will Reach Debt Solution

U.S. Secretary of State Hillary Clinton
Hillary Clinton, U.S. secretary of state. Photographer: Jerome Favre/Bloomberg

Secretary of State Hillary Clinton reassured China, the top holder of American Treasuries, that the U.S. will resolve its impasse over the debt ceiling and improve the country’s long-term fiscal outlook.

“Many have questions about how the United States is going to resolve our debt-ceiling challenge,” Clinton said today in Hong Kong. The “political wrangling” is part of democratic problem-solving, she said. “I am confident that Congress will secure a deal on the debt ceiling and work with President Obama to take steps to improve our long-term fiscal outlook.”

The top U.S. diplomat made the remarks as talks over the debt ceiling stalled again in Washington, sending the value of the U.S. dollar down and gold to record highs. Failure to reach an agreement before Aug. 2 risks a default and a cut in the nation’s AAA credit rating. Chinese officials have expressed confidence that it won’t get to that point.

“They will definitely reach an agreement,” Xia Bin, one of three advisers to the People’s Bank of China, said in a telephone interview with Bloomberg News today.

Characterizing the debt debate as a short-term bump in the road, Clinton held the U.S. “opportunity society” up as a model for the Asia-Pacific. Speaking before the American Chamber of Commerce in Hong Kong, she said that requires attributes that “characterize healthy economic competition, not just in Asia, but across the world: open, free, transparent and fair.”

Balancing Economies

Clinton noted that balancing the global economic order will require changes from both the U.S. and in Asia. While America must save more and borrow less, she said, Asia must do more to foster domestic demand.

Her message, delivered on China’s doorstep, is directed at the world’s second largest economy, its state-owned enterprises and a government procurement policy that has favored local firms over foreign competitors, a State Department official told reporters, speaking on condition of anonymity because he wasn’t authorized to talk on the record. He emphasized that the message also applies to other U.S. competitors.

Clinton said that some developing countries that are focused on fighting poverty might be slow to implement at home the same rules they benefit from abroad. Others “might even think the rules don’t yet apply to them,” she said.

“All who benefit from open, free, transparent and fair competition have an interest and a responsibility to follow its rules,” Clinton said. “Enough of the world’s commerce takes place with developing nations that leaving them out of the rules-based system would render that system unworkable --- and ultimately that would impoverish everyone.”

China SOEs

Clinton referred indirectly to China’s state-owned enterprises, saying that it is essential to have a level playing field for all business.

“We seek an open system where a person anywhere can participate in markets everywhere,” she said.

The Chamber’s China counterpart in April called on China to open its financial sector to more foreign competition. Business lobbies in China have also criticized the country’s procurement rules and other administrative regulations that hinder access to the country’s market.

Clinton’s remarks reflect her increasing alignment of economic and foreign policy. The Secretary has mobilized U.S. companies to help with development projects and to support larger foreign policy goals, including the stabilization of countries such as Iraq and Afghanistan.

Foreign Policy

In comments around the world to business audiences, Clinton has repeatedly drawn a link between foreign policy and U.S. jobs growth, a central issue with unemployment now around 9 percent and a national election looming next year.

“As we pursue recovery and growth, we are making economics a priority of our foreign policy,” Clinton said today. “Increasingly, economic progress depends on strong diplomatic ties, and diplomatic progress depends on strong economic ties.”

Clinton spoke out against tariffs and regulations that strangle trade and said the U.S. was hoping to unveil plans for “genuine free trade zone” in the Asia Pacific, the Trans Pacific Partnership, when Obama hosts the next Asia-Pacific Economic Cooperation forum meeting in November.

“There’s a danger of creating a hodgepodge of bilateral agreements that create new complexities,” she said. “We should aim for true regional integration, and that is the spirit of the Trans Pacific Partnership.”

The TPP would go beyond previous free trade agreements by including protections “for workers, the environment, intellectual property and innovation,” Clinton said.

‘Here to Stay’

“We are a resident power in Asia -- not only a diplomatic or military power, but a resident economic power,” Clinton said. “And we are here to stay.”

After her speech, Clinton was traveling to Shenzhen to meet China’s State Councilor Dai Bingguo.

She will discuss North Korea, and will ask Dai to deliver the message to the country’s leaders that the U.S. expects to see progress on nuclear issues before six-party talks can continue, the State Department official said.

Clinton will also convey messages from Southeast Asian foreign ministers that she heard during last week’s regional security forum in Bali, Indonesia, according to the official.

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