Remarks by Assistant Secretary for International Finance Brent Neiman at the Program on International Financial Systems’ U.S.-China Symposium in Hong Kong

Building the Financial System of the 21st Century: An Agenda for China and the United States

Introduction

Thank you to the organizers at the Program on International Financial Systems (PIFS), Harvard Law School, and the China Development Research Foundation for hosting this symposium. This report aims to discuss the importance of sustainable development goals (SDGs) in building the financial system of the 21st century for both China and the United States.

The Global Financial System and U.S.-Chinese Economic Relations

The global financial system is currently facing challenges such as channeling capital for pandemic responses, tightening financial conditions, and technological change. This symposium is taking place at a crucial time for U.S.-Chinese economic relations, following the meeting between President Biden and President Xi in Bali. During Secretary Yellen’s trip to Beijing, she emphasized the importance of healthy economic competition, cooperation on global challenges, and targeted actions to protect national security interests.

Economic Interconnections between the United States and China

1. Trade-based Interconnections:
   • Last year, trade in goods and services between the United States and China exceeded $750 billion.
   • Actions taken to protect national security are narrowly tailored and not aimed at stifling China’s economic development or providing a competitive advantage to U.S. companies.
2. Investment-based Interconnections:
   • China’s total stock of foreign direct investment (FDI) is second only to the United States.
   • U.S. FDI in China stands at over $120 billion, while China’s direct investment into the United States totals nearly $30 billion.
   • Around 250 Chinese companies are listed on U.S. exchanges with a total market capitalization of over half a trillion dollars.
   • Americans owned more than $1 trillion in the bonds and common equity of Chinese firms in 2020.

Financial Policy and Regulation

Efforts to preserve financial stability and regulate the financial sector require collaboration between countries. Bilateral discussions between officials responsible for financial stability, supervision, and regulation in the United States and China are crucial due to the size of their financial systems.

Banking Sector

The United States and China have significant banking assets relative to their GDPs. They account for over 40 percent of global banking assets, with several global systemically important banks headquartered in both countries. Cooperation on recovery and resolution regimes for these banks is essential to minimize disruption to the financial system.

Non-Bank Financial Institutions (NBFI)

NBFI, including money market funds, insurance companies, hedge funds, private equity, and venture capital, play a critical role in both the U.S. and Chinese economies. Addressing vulnerabilities in NBFI is a priority, and both countries can benefit from sharing best practices and understanding each other’s approaches.

Real Estate Exposures

Both the United States and China have considerable exposures to real estate, which poses risks to financial stability. Monitoring vulnerabilities in the commercial real estate market and sharing information on domestic exposures, regulations, and institutional features can enhance regulatory and supervisory efforts.

Financial Market Innovation

Digital assets and new technologies have the potential to impact commerce and finance across borders. Both the United States and China are interested in fostering responsible innovation in this area while protecting consumers, financial stability, and market integrity. Cooperation on regulation, supervision, and oversight of digital assets is crucial.

Climate-Related Financial Risk

Addressing climate-related financial risk is a priority for both the United States and China. Both countries are working on incorporating climate risk into regulatory and supervisory practices. Cooperation on data sharing, scenario analysis, and disclosure standards is essential to mitigate risks and align private capital flows with climate goals.

Conclusion

The United States and China, as the two largest economies and financial systems, have a shared interest in discussing financial regulation and supervision. Despite concerns and differences, engaging in discussions on financial policy can benefit both countries and the rest of the world. Cooperation on sustainable development goals is crucial for building the financial system of the 21st century.

SDGs, Targets, and Indicators

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 8: Decent Work and Economic Growth
• SDG 9: Industry, Innovation, and Infrastructure
• SDG 10: Reduced Inequalities
• SDG 11: Sustainable Cities and Communities
• SDG 13: Climate Action
• SDG 16: Peace, Justice, and Strong Institutions
• SDG 17: Partnerships for the Goals

2. What specific targets under those SDGs can be identified based on the article’s content?

• Target 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 percent gross domestic product growth per annum in the least developed countries
• Target 9.3: Increase the access of small-scale industrial and other enterprises, particularly in developing countries, to financial services, including affordable credit, and their integration into value chains and markets
• Target 10.2: By 2030, empower and promote the social, economic, and political inclusion of all, irrespective of age, sex, disability, race, ethnicity, origin, religion or economic or other status
• Target 11.4: Strengthen efforts to protect and safeguard the world’s cultural and natural heritage
• Target 13.1: Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries
• Target 16.6: Develop effective, accountable and transparent institutions at all levels
• Target 17.16: Enhance the global partnership for sustainable development, complemented by multi-stakeholder partnerships that mobilize and share knowledge, expertise, technology and financial resources

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

• Indicator 8.1.1: Annual growth rate of real GDP per capita
• Indicator 9.3.1: Proportion of small-scale industries in total industry value added
• Indicator 10.2.1: Proportion of people living below 50 percent of median income, by age, sex, and persons with disabilities
• Indicator 11.4.1: Total expenditure (public and private) per capita spent on the preservation, protection and conservation of all cultural and natural heritage
• Indicator 13.1.1: Number of deaths, missing persons and directly affected persons attributed to disasters per 100,000 population
• Indicator 16.6.1: Primary government expenditures as a proportion of original approved budget, by sector (or by budget codes or similar)
• Indicator 17.16.1: Number of countries reporting progress in multi-stakeholder development effectiveness monitoring frameworks that support the achievement of the sustainable development goals

Table: SDGs, Targets, and Indicators

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Source: home.treasury.gov

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