Paulson heading to China as trade frictions grow

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WASHINGTON, July 25 (AFP): Treasury Secretary Henry Paulson announced plans Tuesday to visit China next week for high-level economic talks amid simmering discontent at home over Chinese trade policies.
The announcement comes amid growing pressure to curb the burgeoning trade gap with China and moves in Congress to punish Beijing for what some say are unfair trade policies.
As Paulson was making plans to go to China, the Senate Finance Committee scheduled a meeting to vote on a bill to impose sanctions on a country with a "misaligned" currency-making it easier to act that current laws on currency manipulation.
Paulson will "meet with government officials and discuss the US-China Strategic Economic Dialogue (SED)" launched last year, a Treasury statement said.
Paulson begins his visit Sunday at Qinghai Lake, the largest lake in the country and an example of the environmental challenges faced in China as well as the global nature of these problems, the statement said.
On July 31, Paulson goes to Beijing where he will spend Tuesday and Wednesday meeting with Chinese officials including President Hu Jintao and Vice Premier Wu Yi.
"This trip is part of an ongoing process to strengthen our strategic economic relationship-to address long-term issues such as working with China to rebalance its growth and increase the flexibility of its currency, and also to address short-term issues as they arise," Paulson said in the statement.
The visit comes amid growing pressure in Washington to deal with the massive US trade deficit with China.
Some lawmakers in Washington accuse Beijing of keeping its currency purposefully low to give its exporters an advantage, and of using subsidies and other unfair trade actions.
Several bills are pending in Congress that would impose sanctions on China for unfair trade policies.
China revalued the yuan by 2.1 per cent from 8.28 yuan in July 2005 and has since then allowed the unit to rise about six per cent.
In May, the daily trading band against the dollar was widened to 0.5 per cent from 0.3 per cent on either side of a central parity rate, in theory making it possible that the currency could appreciate more quickly.
But US officials have consistently said China needs to move more quickly on currency policy and other economic reforms.
Paulson will meet with officials in Beijing "to discuss a broad range of issues that are critical to the US-China economic relationship," the Treasury statement said.
"He's expected to raise with Chinese leadership issues of concern to the US Congress in his meetings there, as well as follow up on action items that were identified at the last meeting of the SED in May."
Paulson said he would also follow up on issues raised at the SED talks in Washington in May on the environment.
"The only way to make progress on climate change is to engage all the large economies, developed and developing, to work toward embracing cleaner technology and reducing emissions," he said.
"What's happening with the environment in the middle of China not only affects the local climate and economy but also the global climate and economy.
"And that's why it's so important that we work together on these big issues where we have a common interest in finding solutions that will benefit us all."
Peter Morici, economist at the University of Maryland, said that with pressure mounting on China, he expects "a symbolic act" such as a revaluation of the yuan by around 2.5 per cent.
Such a move "is not going be able to solve the problem," but may deflate critics in Congress.
"Paulson really doesn't have any leverage," Morici said.
"We know from past experience that economic pressure does work with China, but this administration has been unwilling to apply any," he added.
"The Chinese will be happy to talk to Paulson for as long as he wants to talk because in the end, talks will not push them to move."