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Home >> Opinion
UPDATED: 15:42, June 08, 2006
Major challenges ahead for new US Treasury chief
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Henry M. Paulson was formally nominated as US Treasury Secretary by President George W. Bush on May 30 to replace John Snow, who held the post since February 2003.

Ending the months of speculation about Snow's successor, this nomination, once confirmed by the Senate, will bring one of Wall Street's most respected investment bankers into Bush's cabinet.

Paulson, currently the chairman and CEO of the Goldman Sachs Group, was recruited for his "intimate knowledge of financial markets and an ability to explain economic issues in clear terms," Bush said in his nomination announcement.

Apart from that, Paulson is also known for his connection with China.

Having made over 70 visits to China since 1990, he still holds a post in the Advisory Board of the School of Economics and Management of Tsinghua University, one of the country's most prestigious universities.

Being the chairman of The Nature Conservancy, one of the largest environmental groups in the United States, Paulson has also been closely involved with environmental projects in Southwestern China's Yunnan Province, where the group has its Chinese headquarters.

Paulson said that he had never dreamt of announcing the inauguration of the Goldman Sachs' Beijing office in the Great Hall of the People in 1994, nor had he dreamt of meeting so many top Chinese leaders.

Under Paulson's leadership, Goldman Sachs has been responsible for a number of firsts in China. It was the first foreign financial institute to receive a licence to trade B shares on the Shanghai Stock Exchange, it was one of the first Qualified Foreign Institutional Investors (QFII) and it was the first tender-winner to help in the disposal of non-performing State assets. It was also one of the three underwriters of the Bank of China's initial public offering.

For the United States, trade with China is as significant as that with Japan in the 1970s and 1980s. Therefore, it is very important to have a treasury secretary who is capable of conducting a friendly dialogue with China.

Paulson's thorough understanding of the situation in China and good connections with the country may have contributed to his nomination.

And this factor will probably have a substantial influence on future bilateral ties between these two major engines of the global economy.

External affairs aside, Paulson will have enough challenges within the United States. But he will have limited room for manoeuvre, as the Bush presidency ends in two years' time.

The US economy achieved an average growth of 3.98 per cent during Snow's term, which was almost the same as the 3.99 per cent achieved under Robert Rubin, the treasury secretary in the Clinton administration regarded as the most successful holder of the post in recent years.

Despite such significant economic growth, Snow's incompetent handling of tax reforms and welfare policies meant he was not regarded as a capable treasury secretary.

Apart from these issues, Paulson has to deal with other problems cropping up in the economy.

The United States continues to see huge fiscal deficits as well as trade deficits. The new economic powerhouse is still to emerge after real estate was cooled down. Inflationary pressures are looming after price hikes in the world's major commodity futures.

Paulson will also have to "help ensure that our trading partners play by the rules, respect intellectual property rights and maintain flexible, market-based exchange rates for their currencies," the three major measures required to defend US national interests, according to President Bush.

Carrying out the exchange rate policy is one of the most important functions of the treasury. Paulson will probably stick to the strong-dollar policy pursued since Rubin's tenure as treasury secretary. Attracting capital inflow from across the world, this policy will help maintain the US double deficits. It is also in the interests of many other countries, including those in the European Union.

To continue with this policy, the United States has to apply strong pressure to countries whose exchange rate policies are thought to be against US interests, which will be a demanding task for Henry Paulson.

Source: China Daily


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