Host: US Treasury Secretary, and Chinese Vice Premier, Wang Qishan, join us now in Washington for their first joint interview, and the first interview in the United States for the Vice Premier. What do you hope to accomplish in this session? And how do you assess where the relationship is today?

Wang Qishan: I believe the relationship between our two countries, over the past three decades and more since the establishment of China-US diplomatic relations, has indeed experienced twists and turns. But what is more important is that today, it has moved towards greater maturity, and it was highlighted by the visit to the United States by President Hu Jintao back in January and the President... [agreement text]... the important agreement to build a China-US cooperative partnership, based on mutual benefit and mutual respect. And four months later, I'm here in the United States for the third round of the China-US Strategic and Economic Dialogue, that is to say, Secretary Geithner. And I had a previous agreement about the major tasks we are going to accomplish during this round of the dialogues. That is to say, at this round of the dialogues, the focus for us... we are going to follow through on the important agreements reached by the two Presidents to deepen our economic cooperation across the board in the area of finance, economic trade and investment,

Host: ...so that we'll bring up the comprehensive and mutually beneficial economic partnership between our two countries to a new high, from the transition from an exporting model to a consumer demand model from domestic consumers. What are the challenges for you?

Geithner: Oh, actually the biggest challenge for us in this respect is to make sure that everyone is on the same page, and when we look at the problem, we need to come to the same conclusion that it is necessary for us to transform our economic development pattern.

Wang Qishan: And at the same time, stay committed to the outlook of scientific development because we have to be aware of the issue of the lack of balance and coordination in our development. And this, in turn, will make our economic development, not sustainable.

Host: Have you come to the conclusion that because of inflation, oil and food, especially that an appreciation in your currency might be the right thing to do now?

Geithner: In a certain sense, this is just the question we face in the immediate run,

Wang Qishan: actually, against the backdrop of a financial crisis and faced with the need to ensure study and relatively fast economic development, the most pressing problem we are faced right now is the problem of inflation. And uh inflation is a problem we place a lot of importance right now in China, and it is the biggest problem we are going to tackle this year in China. In order to do this, we have to use monetary policy, fiscal policy, and at the same time, economic restructuring. And on top of that, against the backdrop of uh tremendous inflation pressure hearing China, another thing we have to very much mind is to ensure the likelihood of the people with the west st.

Geithner: Come pressure, this is very important.

Host: We're very much bothered by the US economy coming out of the crisis. China was the first to recover. You have great concerns about the American economy.

Geithner: Actually, the numbers for the American economy in the fourth quarter of last year were quite good. And in the first quarter of this year, your jobs market is improving, and we have uh uh, good numbers about the economic growth in the first quarter. It may not be that satisfactory that it was not bad. And talking about the American economy, I believe the housing market is the most important thing for the American economy. And this issue has not been fully addressed in the course of the financial crisis, and the housing problems are correlated with the jobs market. And I do foresee a possible problems in this area. Uh, the policy of quantitative easing in the United States has brought back some confidence in the US capital market, and that, in turn, has created some wealth returns, which has uh has a result boosted part of your demand. And this is good also for the jobs. But still, I believe housing is a big issue. We have to take seriously, and it has not been fully addressed.

Host: Secretary Geithner has expressed what he would like to see happen with respect to the currency. What would you like to see, Secretary Geithner?

Geithner: First and foremost, I believe what is important for the United States to do is to depoliticize economic issues to do with China.

Wang Qishan: During my previous conversations with Secretary Geithner, I often told him that it was true that there was always a political dimension to economic problems, and economic issues are closely related to political ones, but it is dangerous to politicize economic issues.

Geithner: You take the exchange rate, a very simple issue as an example. It seems to me that somehow the Americans have a view believing that China's trade surplus is caused by manipulation of exchange rate, and China became a big trading country in the world, simply by manipulating its currencies.

Wang Qishan: Actually, this is a very myopic argument. And for those people who really understand what the exchange rate is really about, they would not say so.

Host: Are you looking for investments in the United States? Do you believe that um your opportunity to invest in technology is being respected?

Geithner: There's no doubt that we are trying to encourage more and more Chinese companies to go global.

Wang Qishan: Actually, part of China's policy of expanding the opening to the outside world is on the one hand to invite foreign companies to invest in China and at the same time to encourage Chinese companies to go global. And the United States is one of the countries whose companies we would like to [attract] in China. And for the Chinese companies, they do not have sufficient knowledge about the investment environment, investment policies, and in particular, the security review policies in the United States. And given what happened to some cases related to um security review in the United States happened to Chinese companies trying to make an investment here, we've got the feeling that there is a lack of transparency in your security review policies. And one of the investment hurdles for the Chinese companies trying to make investment here is that they are short of talented people.

Geithner: Actually, to make investment is just like spending money; it is not easy at all to spend money, and it is even harder to try to get a bigger bang for your money. So for the Chinese companies, they really face the issue of how to well spend their money. And it is very difficult for Chinese companies to have those capable people who understand, at the same time, the domestic situation, their particular industry, and the situation here in the United States.

Host: Many Chinese believe the United States wants to contain their growth and development. Do you believe that the US wants to contain China?

Wang Qishan: Actually, during President Hu Jintao's visit to the United States, the US government and President Obama himself, said on many occasions that the United States hopes to see prosperity and development in China and believes that this would serve the world and the United States. I believe in what your President said.

Host: What do you think the biggest misconception about your country is from America in general?

Geithner: I don't think this is a misconception, it is more of a lack of understanding.

Host: What do you want us to understand?

Wang Qishan: Well, in the first place, it is not easy to really know China because China is an ancient civilization,

Geithner: and we are of the Oriental culture, and for the Americans, the United States is the world's number one superpower. And the American people, they are very simple people. If they choose to, if they are to choose to understand a foreign country, their first choice would be the European countries, and the South American countries may come second. It was not only till recent years that the American people have begun to pay more attention to China. But over the years, American media coverage of China has been scarce.

Host: And if there was some coverage, most of them are biased. There was a story in the New York Times today suggesting that despite this good dialogue taking place here in China, there is a real sense of crackdown on artists, and I'm foreign out of some fear or some concern about the United States are are some Arab Spring kind of ideas coming to China.

Geithner: I don't think it is possible for um events like Arab Spring to take place in China.

Wang Qishan: That might be the conclusion of your State Department.

Geithner: I understand that there has been frequent exchange of views between your State Department and China's Foreign Ministry regarding the situation in North African and West Asian countries, but we've said on many occasions that it is not possible for things like events in West Asia, North African countries to take place in China.

Host: When you look at this relationship, what is your biggest worry? Or are you essentially optimistic about China's economic relations becoming politicized?

Wang Qishan: My biggest worry is that economic relations between China and the United States become politicized.

Geithner: Because once economic issues are politicized, they are no longer economic issues, but political ones.

Wang Qishan: If we were to say China and the US are the world's biggest economies and the biggest developing country, the intersection of our interests is enormous, and we face great opportunities for cooperation.

Geithner: Both countries have their problems, in terms of transforming economic growth patterns and promoting economic cooperation. We face a lot of opportunities.

Wang Qishan: Leaving aside the economy itself, once politicized, economic issues are no longer economic issues, but become political ones.

Geithner: Such opportunities for cooperation may well be lost.

Wang Qishan: So, the most important thing for us to do is to depoliticize economic issues and maintain the true nature of economic relations between China and the US. In this way, we can truly reflect a comprehensive and mutually beneficial economic relationship.

Geithner: China has a population of 1.3 billion, and its GDP is now the world's second largest.

Wang Qishan: But in terms of hard power and soft power, there is still a big gap between China and the United States. What is even more important is that when we look at the per capita numbers, Chinese per capita GDP rankings are around one hundredth in the world.

Geithner: This is something that has never happened to the world before. This is a unique circumstance. Never has there been one single country in the world with the second largest GDP, but with a per capita GDP that is ranking around one hundredth.

Host: You mentioned the issue of the exchange rate.

Geithner: Talking about exchange rate, there's one thing I wish to let your viewers know.

Wang Qishan: Because many people compare China's trade situation with Japan's trade surplus with the US.

Geithner: A lot of people, people in the United States, actually made such comparison. The five differences, among the five differences, two of them were raised by Larry Summers, when he came to the United States and told me...

Wang Qishan: Referring to the China-US trade surplus.

Geithner: When talking about China-US trade surplus and Japan-US trade surplus, then someone said some things are different. Japan, first, when trading with the US for surplus, Japan's manufacturing technologies were higher than or equal to the US.

Wang Qishan: And China, at that time, Japan's technology level was already leading the US. This is not the case now when we talk about Chinese technologies lagging behind.

Geithner: Second, back then, American consumers could well remember Japanese brand names, such as Sony, Toyota, and so on. But for the American consumers, they could not remember too many Chinese branding, only "Made in China."

Wang Qishan: Actually, this was told to me by the central bank government of Japan. He added this third difference upon hearing the two differences mentioned by Larry Summers. He told me that in Japan's trade surplus, most of the surplus was contributed by Japanese companies solely. But it is a different story in China. More than sixty percent of our surplus with the United States is contributed by foreign invested companies or multinationals from the US, Europe, or Japan.

Geithner: are simply processed in China, then exported to the United States. That is why recently, some experts say that it is better to say that products are created in the world, but only made in China. That is to say, a large part of our surplus with the US comes from processing countries. The core components of those exports come from developed countries.

Wang Qishan: Take Apple's iPhone as an example. It sells for several hundred dollars, but only thirty or forty dollars were actually created as value added in China. So it was better to describe Apple products as created in the United States, but only made in China.

Geithner: And the fourth difference between Japan-US surplus and the China-US surplus is that Japan does not have an export control. That is to say, it is possible for the Japanese to buy virtually anything from the United States, including planes, cannons, and warships. But this is not possible for China because of the American products, as Secretary Geithner just mentioned, because of security reasons, are not exported to China.

Wang Qishan: And for the Chinese people, when we look at the trade balance issue with the United States, Americans are complaining about our exchange rate.

Geithner: And the Chinese people are saying that this is because you have your good stuff, but you will not sell them. This is the fourth difference.

Wang Qishan: This is the fifth difference. Now, China is the world's second largest trading country.

Geithner: Actually, the largest trading country. But even so, the US has yet to recognize China as a market economy. Not even the Europeans, the Japanese. They have yet to recognize China as a market economy. But back in the days when Japan was running a surplus with you, you recognized Japan as a market economy.

Host: I was recently with Lee Kuan Yew, Prime Minister of Singapore. He said that you were the person he most liked to deal with in China. He paid enormous compliments to you. He said, "I hope he will stay at his position, and we will not retire, and we'll be there because he's as good as he had seen. But I want to, I like to do business with this Wang Qishan." I thought you'd say that there is talk that he may stay on, even though he's sixty-five. Well, if I was them, I'd keep him on. Haven't got anybody near him, practical, hot-headed, humorous, quickly, party, and next, the right decisions from the Chinese point of view.

Geithner: When you were meeting with him, did he still have a statue of Confucius on his table?

Wang Qishan: I had a conversation with him back in his office in the nineties. What impressed me the most was the statue of Confucius on the top of his table.

Geithner: Mister Lee Kuan Yew, he had succeeded in finding a path of development of a city-state. He made use of both the oriental culture and the western culture. In terms of culture, he made more use of Eastern elements. But in terms of institutions, he made more use of the British system.

Host: Thank you for coming today. You said to me, "Thank Secretary Geithner. Secretary Geithner said there is again looking for leverage."

Geithner: It is not till now that I feel a little bit more to this conversation with...

Host: So I'll do more, more. So we can do more, we'll do more of it. We should do this again. And my my friends in China also say about you that you are a man who loves a quick reply and that you're a great student of history. So perhaps, and we can talk more about economic, but also history the next time.

Geithner: Of course, anytime.