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A conversation with Timothy Adams on China

The Institute for International Finance CEO and former Treasury undersecretary weighs in on China's financial reforms.

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Chinese leaders are embarking on reforms that could remake the financial sector and liberalize the yuan. But will they unfold smoothly? Timothy Adams, president of the Institute for International Finance shares his thoughts with GlobalPost. (Frederic J. Brown/AFP/Getty Images)

Editor’s note: The author is the editor-in-chief of the business channel at China’s People’s Daily.

BEIJING, China — Now, all eyes are on China's new round of financial reforms as Beijing steps up its commitment to the much-anticipated reform with the establishment of a free trade zone in Shanghai and a slew of recently issued liberalization measures.

The financial reform, if successfully implemented, will further open up China's financial markets to the global business community and create more opportunities for international investors by gradually liberalizing interest rates, loosening capital controls, relaxing the convertibility of the yuan and state ownership of the banking system, as well as expanding capital markets, among others.

But how will this tempting blueprint actually come to fruition? Are there any challenges facing the eagerly awaited reform in the world's largest and most dynamic developing economy?

As the president and CEO of the Institute of International Finance (IIF), who regularly interacted with counterparts in key emerging markets including China and traveled extensively throughout the world's second-largest economy, Timothy Adams is especially qualified to comment on China's economic and financial issues.

Prior to joining the Washington-based IIF, the world's most influential global association of financial institutions representing more than 400 member agencies around the globe including most of the world's largest commercial banks and investment banks, Adams served as the undersecretary for international affairs at the US Treasury Department, where he was the George W. Bush administration's point person on international financial and economic issues, including exchange rate policy, G7 and G20 meetings, and IMF and World Bank issues.

The former Treasury undersecretary recently had an in-depth conversation in Beijing with Zhenyu Li, editor-in-chief of the business channel at the People's Daily Online and a contributing columnist for some of the world's leading trade publications.

Adams shed light on the financial reform in China, China's monetary policy and China-US exchange rate as well as voicing his interpretation of China's much-talked-about new catchphrase — the Chinese Dream.

Here are excerpts from their conversation, edited and condensed by GlobalPost.

Zhenyu Li: Tim, please tell the audience a little bit about your China-related background first.

Timothy Adams: Sure. My first trip to China was in September of 2001, and I was with Treasury Secretary Paul O'Neill at that time. Then I've been on countless trips here over the past 13 years. I was part of the effort with former US Treasury Secretary Henry Paulson to start the first US-China Strategic Economic Dialogue, which was an important part of advancing US-China economic relations.

Zhenyu Li: Great! Let's move on to the topic about the much-talked-about financial reform in China. As you know, it is almost a consensus among economists that economic reforms would be vital, or to say, the only way to put China on a more sustainable footing. And reforming China's financial sector is considered a top priority. So what's your take on China's financial reforms?

Timothy Adams: First of all, I do agree with that statement that China has witnessed and experienced remarkable economic growth for the past 30 plus years. But that growth model — which was so important in achieving China's great prosperity — needs to adapt and change so that the next 30 years can experience the same kind of economic progress.

Financial sector reform is a key ingredient in a new growth model. And that key ingredient is about better allocation of savings to new growth industries, allowing households and individuals a more diversified and safer portfolio of savings and also allowing households greater returns on their savings, which raise their incomes and allow them a higher standard of living.

So, for China to transition to a new growth model, which is happening and is a priority for the Chinese new leadership, for that to happen, financial sector reform has to be a part of the changes that will lead to a new growth model.

Zhenyu Li: As you know, a core component of the modern financial system is capital market. The capital market reform plays a major role in China's overall financial sector reform. China has so far still been an economy that relies heavily on indirect financing. So, how do you see the reforms in China's capital markets, and also the yuan convertibility?

Timothy Adams: I focused my comments today specifically