CHINA: China and U.S. hold economic talks to ease trade and currency disputes.

The first China-US Strategic Economic Dialogue, aimed at easing trade and currency friction that is bedeviling relations between the two economic powers, opened in Beijing on Thursday (December 14). Chinese Vice-Premier Wu Yi and visiting U.S. Treasury Secretary Henry Paulson and other senior Washington policy-makers kicked off the two-day meeting. Before leaving for Beijing, Paulson had played down hopes for a quick fix to the trade strains, but he wasted no time in telling China that Washington wanted to see market forces setting the rate of the yuan, also known as the renminbi. In subsequent comments at the beginning of a meeting with Wu Yi, Paulson said tangible results were needed to counter scepticism in the United States about the usefulness of the dialogue. Wu, China's most powerful woman, described the talks as being of "critical" importance. But she also pushed back against U.S. criticisms saying the United States's failure to fully understand China was harming relations. Wu's opening speech focused on the reforms China was pursuing to expand market forces in the country, with the aim of shifting the impetus of economic growth from exports to domestic demand. She also said China would improve its legal system and protection of intellectual property -- another frequent U.S. complaint, as pirated films, music and other protected goods flood the Chinese market. Wu said China was committed to continued market reforms and achieving a "rough balance" between imports and exports -- a key complaint of Washington, with the U.S. trade deficit with China this year set to break last year's record $202 billion. Paulson, who is in Beijing with six other cabinet officers as well as Federal Reserve Chairman Ben Bernanke, says his aim is to lay the basis to handle a relationship that will have consequences for the United States and its economy for generations. To emphasise the long-term solutions that will be needed to reduce the bilateral trade and savings imbalances, the talks have been called a "strategic economic dialogue". But short-term political pressure have mounted since the Democrats won control of Congress in November's mid-term elections. As well as emphasising the need for sustainable growth without large trade surpluses, Paulson said the U.S. delegation would also emphasise the importance for China to further open its markets to trade, competition and investment. Paulson, a former chairman of investment bank Goldman Sachs, said the third focus would be energy and the environment. As the meeting got under way, China let the yuan rise to its highest level since it revalued it by 2.1 percent in July 2005, scrapped its decade-old dollar peg and set the currency free to float within tightly managed bands. The central bank set the yuan's daily midpoint at 7.8197 per dollar, marking a further 3.7 percent gain since the initial revaluation. But some U.S. lawmakers and businessmen say the yuan remains substantially undervalued given China's bulging balance of payments surplus of some 10 percent of national output. The United States reported a record $24.4 billion trade deficit with China in October, 40 percent of its total deficit.

ITN Source | December 14, 2006

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