In Beijing, U.S. delegation presses 'currency flexibility'

Paulson Plans to Press China on Currency

By Joe McDonald
Associated Press
Thursday, December 14, 2006

http://news.yahoo.com/s/ap/20061214/ap_on_bi_ge/china_us_trade

BEIJING -- U.S. Treasury Secretary Henry Paulson said Thursday he would press Beijing over market access and its currency as he and top Chinese officials opened talks amid demands by American critics for quick action on trade disputes.

Paulson has warned against expecting breakthroughs from the two-day talks, billed as the start of a long-range dialogue. But U.S. President George W. Bush is under pressure to show results after his Democratic rivals, including prominent critics of Beijing's trade record, won last month's congressional elections.

"We will emphasize the importance of continuing to open markets to trade, competition, and investment," Paulson said in an opening statement at the talks, according to a written text.

He said the U.S. side also would stress "the importance of currency flexibility" -- a key demand by American companies.

Chinese Vice Premier Wu Yi, opening the talks at the Great Hall of the People in central Beijing, expressed optimism they would "help us enhance mutual trust and remove misgivings."

Paulson's delegation included Federal Reserve Chairman Ben Bernanke and four other Cabinet secretaries. The Chinese side included ministers of finance, commerce, and technology, as well as China's central bank governor. The gathering includes side meetings on U.S.-Chinese cooperation in health, finance, and other fields.

American officials say the talks are meant to help create a long-range plan for relations. But American business groups want quicker action and are pressing Paulson to take a hard line with Beijing. He has cautioned Beijing that U.S. protectionist sentiment could rise if the process does not show some short-term results.

A key issue for U.S. exporters is China's currency, the yuan, which they say the government keeps undervalued, giving Chinese companies an unfair price advantage and contributing to a widening trade gap between the two nations.

On Thursday the yuan rose to 7.8180 to the U.S. dollar, its highest level since Beijing revalued the currency in July 2005 and adopted a system that lets its exchange rate increase gradually. The yuan has risen only 3.6 percent against the U.S. dollar since that time, not enough for American manufacturers.

A Chinese central bank official told reporters earlier this week that Beijing sees no reason for rapid changes in a system that restricts the yuan's daily fluctuations to a narrow band against the dollar.

New statistics on China's soaring trade surplus have given ammunition to American critics of its trade record.

The U.S. Commerce Department reported this week that the U.S. trade deficit with China in November rose by 6.1 percent to $24.4 billion.

The U.S. deficit with China is running at an annual rate of $229 billion, far above last year's $202 billion deficit, an all-time high for any country.

On Monday, U.S. Trade Representative Susan Schwab, a member of Paulson's delegation, released a report accusing Beijing of failing to live up to its World Trade Organization market-opening commitments. It warned that Washington would not hesitate to seek sanctions.

On the eve of the talks, Beijing announced that it had launched an anti-piracy campaign targeting producers and distributors of illegally copied movies, music and other goods.

China is believed to be the world's leading source of pirated goods ranging from Hollywood movies to designer clothes, sports equipment and even medicines. American officials say Chinese piracy costs legitimate producers up to $50 billion a year in lost potential sales.

Washington has warned Beijing might face a formal complaint in the World Trade Organization, with the possibility of sanctions, if it fails to stamp out the illicit trade.

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