China concedes little at U.S. summit

By Krishna Guha, Eoin Callan,
and Doug Cameron
Financial Times, London
Wednesday, May 23, 2007

http://www.ft.com/cms/s/1e91d272-096f-11dc-a349-000b5df10621.html

China on Wednesday agreed to a new aviation deal with the United States and offered limited concessions in financial services at the conclusion of top-level economic talks in Washington.

The financial sector opening will help foreign companies access China's booming stock market but fell short of the far-reaching liberalisation sought by Hank Paulson, US Treasury secretary. With no new commitments on the currency, the outcome did not satisfy China's critics in Congress, who threatened to introduce new legislationtargeting Beijing for alleged currency manipulation.

China said it would lift the block on new securities joint ventures, and in time let these firms participate in a wider range of activities. Foreign banks would be allowed to issue local currency credit and debit cards, and the ceiling on the amount qualified foreign institutional investors could invest in domestic financial markets would rise from $10bn to $30bn.

But the delegation led by Wu Yi, China's vice-premier, rebuffed US calls to allow foreign securities firms to set up wholly owned subsidiaries or raise the ownership caps on foreign investment in Chinese financial institutions.

Mr Paulson, who personally pressed Ms Wu for financial reform, said the steps were "incremental changes."

The aviation deal paves the way for a significant expansion of bilateral passenger and cargo traffic. Flights operated by US carriers between the two countries will more than double from 10 to 23 a day by 2012.

China agreed to an open-skies deal for cargo from 2011, but would discuss a similar deal for passenger services only from March 25, 2011. The US and China also said they would expand cooperation on energy, and expand trade in environmental goods and services.

Mr Paulson told the Financial Times he would "like there to be more movement." But he said: "I am totally convinced that the dialogue is letting us achieve results we would never achieve without it." He added: "You are going to see more progress over time and I think you are going to see it accelerate."

Ms Wu said the announcements reflected China's acknowledgement of the need to "accommodate as appropriate hot-spot questions in current China-US economic and trade relations."

US lawmakers warned that the modest progress could undermine relations with China.

The Chinese delegation meets with Senate leaders on Thursday, after a highly-charged meeting with members of House of Representatives late on Wednesday.

U.S. Rep. Charles Rangel said the Chinese delegation had given "all the same answers" on currency and trade imbalances.

Sen. Max Baucus, chairman of the Senate finance committee, welcomed Wednesday's progress but said he was "deeply concerned" that the dialogue did not address "the undervaluation of China's currency."

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