Senior Chinese and U.S. officials will gather on Monday in Beijing to kick off the eighth Strategic and Economic Dialogue (S&ED), the last for the Obama administration, to discuss a wide range of economic issues from macroeconomic policy, investment treaty to industrial overcapacity and trade disputes.
The annual high-level dialogue also coincides this year with China hosting the Group of 20 (G20) summit and the United States holding presidential elections. While it's too early to tell what specific outcomes the two sides could get from the two-day dialogue, past experiences suggest that maintaining regular dialogues and continued engagement between the world's two largest economies is increasingly crucial to both countries and the global economy.
FED RATE HIKES & RMB EXCHANGE RATE
"I think the top priority will be, as always, talking about macroeconomic cooperation and how the two countries manage their economies. The United States remains concerned about the RMB (renminbi) exchange rate and about China' s growth," Rory MacFarquhar, a visiting fellow at the Peterson Institute for International Economics and a former special assistant to President Barack Obama for international economics, said of the economic track of the upcoming S&ED.
"This is a very important mechanism" to bring together quite a large number of the U.S. Cabinet and the Chinese State Council high-levels to really hear each other's perspective on a wide range of specific issues and achieve useful outcomes, MacFarquhar told Xinhua.
David Dollar, a senior fellow at the Brookings Institution and a former official of the U.S. Treasury Department, said it's very important for both sides to have "a frank conversation about macroeconomic and financial policies" this year, as the Federal Reserve weighs its next interest rate hike in coming months.
The Fed will hold its next policy meeting just a week after the China-U.S. high-level dialogue. Expectations of a Fed rate hike as soon as this summer have pushed up the value of the U.S. dollar and increased the downward pressure of the RMB, or yuan.
"China will be very interested in hearing what the Federal Reserve thinks," Dollar wrote in a blog post on Wednesday. "Regardless of when the Fed moves, both China and the United States have an interest in seeing a relatively stable exchange rate for the yuan."
The policy actions of the United States and China have never been so closely connected. A relative stable RMB exchange rate will help China engineer a smooth economic transition and maintain a stable financial market, which could pave the way for the Fed to further raise interest rates. Clear communications of Fed's decision-making will also help reduce global market uncertainties and capital outflows from China, avoiding a large devaluation of the RMB to some extent.
The Fed should communicate better with China and financial markets on its interest rate decisions, China's Vice Finance Minister Zhu Guangyao said Thursday, noting that the world's two largest economies should also strengthen policy coordination and cooperation.
"The most important outcome of the S&ED may well be avoidance of policy mistakes, a subtle outcome that will not be reflected in headlines," Dollar said.
