November 20, 2015

On November 5, SIPA welcomed Nathan Sheets, under secretary for international affairs at the U.S. Department of the Treasury, for a discussion of recent economic and financial developments in China, including implications for China's rebalancing and financial reform efforts.

Sheets is the United States’ senior financial diplomat, with responsibility for development and implementation of policies in international finance and U.S. participation in international financial institutions such as the IMF and the World Bank. Senior Research Scholar Patricia C. Mosser, a leading economic researcher with 25 years’ experience at the U.S. Treasury and Federal Reserve Bank of New York, introduced Sheets, while Richard Clarida, the C. Lowell Harriss Professor of Economics, served as moderator.

In his remarks, Sheets discussed the recent economic downturn in China that affected global markets over the summer. He said China’s slowdown this summer was not a signal of economic weakness but was instead linked to a bursting of the equity bubble and liberalization of interests rates, leading to a devaluation of the currency and affected the global markets.

Sheets said it was reasonable to interpret the crisis as a product of a maturing Chinese economy. To support this argument, he pointed out that growth was holding up in services started in 2011, and that consumption remains resilient.

China is shifting away from an economy driven by exports to one driven by household consumption, Sheets explained, which will also help decrease the high rate of investment. The country is also strengthening its social safety net and cutting the value-added tax to encourage consumption, he said, noting that these shifts negatively affected the markets this summer.

It is increasingly important that China works to meet the transparency levels of other treasury currencies, Sheets added. Since China is a responsible actor in the system, he said is it crucial that its government assume a greater responsibility as it assumes a greater role in the world economy.

Concluding his remarks, Sheets suggested that the next five years would be key to China’s transformation.

Editor’s Note: Guests were asked to refrain from sharing verbatim quotes; the Department of the Treasury has provided Under Secretary Sheets’s remarks as prepared for delivery.

— Rebecca Krisel MIA ’16

Pictured from left: Richard Clarida, Nathan Sheets, Patricia Mosser