DAVOS, Switzerland — U.S. Treasury Secretary Timothy Geithner’s uncharacteristically strident tone about China’s “very damaging” subsidization of state-owned enterprises here Friday drew varying responses from trade and business officials, with some applauding his more aggressive stance as others urged restraint.
Geithner said China “systematically” subsidizes enterprises’ costs of energy, access to credit capital and land prices and also caps the exchange rate below its real value, hurting trading partners and the global trading system in the process.
“It means that even though China is starting to have a world-class manufacturing sector, it is supporting that ambition with a set of policies that are very damaging not just to commercial and economic interests of the trading partners, but the critical [political] support around the world for sustaining the world trading system,” he said.
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During a public interview watched by nearly 2,000 business and political leaders attending the 2012 Davos World Economic Forum, Geithner, a mandarin speaker, said, “It’s very important that we get China to move comprehensively, not just on the exchange rate, but on dialing back those set of subsidies and distortions.”
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Chinese trade officials contacted by WWD declined to comment on the secretary’s remarks.
U.S. textile and apparel manufacturing associations have been vocal critics of China’s subsidy regime and claim it has undermined the competitiveness of their products in the domestic and global markets.
Geithner’s remarks drew mixed reactions from participants attending, ranging from support to warnings that the world’s two biggest economies should stir away from a trade war.
Michael Dell, chairman and chief executive officer of Dell Inc., which has a big position in China’s large and growing market, said, “At the end of the day nobody wins in a trade war. Protectionism is not the answer. The secretary knows that.”
Asked to comment on Geithner’s remarks, Karel De Gucht, European commissioner for trade, echoed his sentiments, stating that the world’s most populous nation is subsidizing its state enterprises “in all kinds of ways — cheap land, cheap loans, write-offs,” he said in an interview.
“People think it’s about salaries. No, it’s about all the rest. There is a very special problem with China’s state-owned enterprises,” he said, adding that “they’re aiming at becoming the biggest economy in the world and think they can have a free-rider role. That is not possible.”
Pascal Lamy, chief of the World Trade Organization, which oversees most global commerce, said, “We do have rules in the WTO about disciplining subsidies.”
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Similarly, Supachai Panitchpakdi, secretary-general of the U.N. Conference on Trade and Development, and head of the WTO between 2002 and 2005, cautioned, “I would rather not see a trade conflict between the U.S. and China. They need to rebalance in an apolitical way.”
Former Mexican President Ernesto Zedillo Ponce de León also urged restraint: “I would say to my friend Mr. Geithner — take China to the WTO, don’t act unilaterally.”
Between 60 and 80 percent of China’s economy is now considered to operate under market rules with the balance made up of state enterprises, a substantial increase compared with a few decades ago when state entities accounted for just more than half.