Calling China a “global economic leader” and noting that over the past five years, the U.S. and China spurred more than 50% of global growth, Treasury Secretary Henry M. Paulson, Jr. told business leaders in Shanghai that “China’s continued economic success is not only vitally important to the people of China, but also to the rest of the world.”

As such, Paulson said, China must embrace reforms in its financial services markets. “Open, competitive, world-class financial markets are the backbone of stable and balanced growth,” he said. As such, he recommended “sound accounting standards, strong corporate governance, strong financial institutions, independent financial analysis and research, a meaningful disclosure regime and independent credit rating agencies.”

Paulson advised China to make sure all of its regions experience economic growth and that it doesn’t over rely on exporting low-cost manufactured and industrial goods. He urged authorities to spur the growth of other sectors, including financial services and technology.

Noting that most bank savings accounts return 2.5% in China—or a negative amount after inflation and taxes—he urged the country to embrace a “variety of savings and investment securities and vehicles.”

Paulson also noted that China barely has an institutional financial services industry, and, as a result, retail investors cause volatility. The nation also needs to make it easier for professionals to enter the industry, thereby strengthening the fiduciary role, protecting investors and developing trust in the industry. Finally, Chinese regulators must allow innovation. “Today,” Paulson said, “central authorities continue to be too involved in investment decisions that are more efficiently made by the market.”

Finally—and perhaps Paulson’s most calculated point—he called on China to allow foreign companies to become more involved in its financial markets. Currently, he noted, foreign asset management firms can own no more than 49% of a joint venture in China, a “restrictive” limitation, Paulson said.

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