Treasury Secretary Visits China

Wednesday, March 7th 2007, 5:59 am

By: News On 6

BEIJING (AP) _ U.S. Treasury Secretary Henry Paulson arrived in Beijing Wednesday to lobby high-level Chinese officials for action to end Beijing's controversial currency controls and rein in its bulging trade surplus.

Minutes after landing in Beijing, Paulson started an airport meeting with Wu Yi, China's problem-solving vice premier. Paulson was to fly later Wednesday to Shanghai, where he was scheduled to give a speech at the futures exchange Thursday.

Neither made formal statements. But Wu brought with her China's foreign and commerce ministers and its central bank governor.

She joked to Paulson that to hold the meeting she had to ask for permission to leave China's annual legislative session, which opened in Beijing this week.

Paulson, on his third visit to China in less than a year as treasury secretary, is under increasing pressure from members of the Democratic-controlled U.S. Congress who say he is moving too slowly and suggest that Beijing will take action only if it faces sanctions.

``The political clock is ticking,'' said Myron Brilliant of the U.S. Chamber of Commerce, a business association. ``Members of Congress are just not going to be patient with the (Bush) administration and the Chinese government and clearly expect results.''

The domestic pressure has handed Paulson, Washington's point man on China, a balancing act. He must try to deflate rising U.S. anger while keeping on track a ``strategic economic dialogue'' with Chinese leaders that he has championed as the best way to get China to clear a thicket of trade irritants _ from Chinese product piracy to accusations that Beijing boosts its yawning trade surpluses by rigging its exchange rate.

U.S. Congressional leaders blame Chinese imports _ and a $232.5 billion trade deficit with China last year _ for a loss of American manufacturing jobs and have threatened retaliation.

Bills and proposals to punish China are already percolating in the Congress. The White House has filed a complaint with the World Trade Organization, accusing China of violating commitments to the trade group by providing unfair subsidies to Chinese companies.

American businesses, many of which see China as a vital market or supplier, are concerned about the potential for a dustup, especially over the Chinese currency.

The White House and Beijing must work together to ``prevent the politics of the exchange rate issue from turning into a big bilateral problem that creates an atmosphere in which they can't resolve the real problems for U.S. business in China,'' said Andy Rothman, chief China strategist for investment bank CLSA Asia-Pacific Markets.

U.S. officials say the most serious long-term problems for American companies range from Beijing's failure to stamp out product piracy to improper export subsidies and regulatory efforts to protect Chinese industry.

Critics say China's currency, the yuan, is intentionally kept undervalued, giving its exporters an unfair price advantage and adding to the country's surpluses. Economists say a change in the exchange rate by itself is unlikely to close the trade gap.

Paulson, the former head of the investment bank Goldman Sachs who in that role visited China scores of times, has in recent weeks vowed to make movement on currency the benchmark by which he judged Beijing.

``They need to have more flexibility of their currency in a short term. It needs to appreciate more,'' Paulson said in an interview Sunday on the U.S. television network ABC.

Paulson was much less pointed during his last visit to Beijing in December, when he appealed for patience and said the newly launched dialogue would take time.

At his appearance before the Senate Banking Committee in January, Paulson insisted his high-level strategic dialogue was still the best way to go, but acknowledged that at the end of U.S. President George W. Bush's term in 2008, Washington might still be frustrated with China.

The committee chairman, Sen. Christopher Dodd, a Democrat from Connecticut, warned that events could quickly overtake Paulson's effort given the level of American unhappiness.

``You are going to get blown by if we don't get a better handle on this,'' Dodd said.

Led by Paulson and Wu, Cabinet-level delegations held the first meeting of the U.S.-Chinese dialogue in December. They promised to launch discussions on opening China's service industries and cooperation on clean energy. But they announced no breakthroughs.

Paulson warned then that the two sides need ``tangible successes along the way'' to sustain support for free trade.

Chinese officials say they are making progress on easing currency controls. But they say they already are moving as fast as they can and are constrained by China's poverty and the fragile state of its banks and financial industries.

Possible short-term steps Beijing could take to ease tensions include repealing export incentives and moving quickly with the planned awarding of licenses for companies to open retail money-changing centers in China to serve tourists, said Chen Xingdong, an economist for BNP Paribas Peregrine Securities in Beijing.

However, Chen said, ``They're not going to make any abrupt changes.''