US says China recognises need for stronger yuan
(Reuters)
13 December 2007
XIANGHE, China - US Treasury Secretary Henry Paulson came away from two days of talks on Thursday convinced that China sees the need for a stronger yuan and with a promise that Beijing will open its financial markets a bit wider.
The grand-sounding strategic economic dialogue produced only modest immediate gains but Paulson said it provided a foundation on which to expand cooperation between two nations whose ties he deems vital to global economic prosperity.
The exchange rate was a major focus of the meetings because, as Paulson put it, the pace of the yuans rise had effectively become a proxy for Chinas willingness to permit market forces to play a greater role in its economic development.
Paulson sought no specific commitments from Beijing on the yuan, but he said Chinese policy makers now knew that a stronger exchange rate would help them to fight inflation.
The Chinese recognise growing inflationary pressures in their economy and that a more flexible currency expands their ability to use monetary policy to stabilize their economy, Paulson said at a closing news conference.
Chinas central bank, which keeps the currency on a tight leash, let the yuan rise on Thursday to its highest level since it was revalued and depegged from the dollar in July 2005. The bank is battling inflation of 6.9 percent, an 11-year high.
The yuan has climbed about 6 percent against the dollar in the past year, but some US lawmakers say it remains grossly undervalued and are preparing legislation to force Chinas hand.
Yuans rise
Paulson declined to say how much more quickly Beijing needed to let the currency climb. The pace of appreciation has increased over the past year, he said. Ive talked to the Chinese enough that weve agreed we dont talk about how fast is fast. We agree with the principle (of appreciation).
The US Treasury chief later held separate meetings with Chinese President Hu Jintao and with Premier Wen Jiabao, using the occasion to claim that the twice-a-year dialogue was making it easier to resolve prickly issues.
We are building a bond of trust between us and there is a comfort to our communications that makes it easier to deal with some of the most sensitive and complex and difficult issues, Paulson said as he began a meeting with Hu at the Great Hall of the People.
Wen congratulated Paulson and Chinese Vice Premier Wu Yi, who led the Chinese delegation, saying they had helped reach common understanding on an issue of much importance to both countries, product safety during the talks.
A highlight of the talks was announcement of an agreement to increase safety standards for Chinese food and product exports to US markets. This is a highly sensitive topic after millions of Chinese-made toys were recalled and American indignity over tainted food and pharmaceuticals from China ran high.
Paulson cited other progress on specific fronts, including a Chinese commitment to let banks and other foreign companies that do business in China issue yuan-denominated debt and equity securities.
Modest progress
I would also note we have made modest progress in the financial services area, expanding opportunities for global financial services companies to do business in China, he said.
Paulson said Beijing would end a two-year freeze on foreign securities joint ventures in China, an especially sensitive issue for the influential US financial services industry, and expressed confidence that the permitted business scope of such ventures would be expanded.
We want them to do more and to move faster, he said.
Opening Chinas financial markets to foreign competition strengthens the financial backbone of the Chinese economy, and is critical to Chinas goals of spreading the benefits of growth to all the Chinese people, Paulson said.
But it was evident that US negotiators did not get all they sought.
US Trade Representative Susan Schwab, answering reporters questions, said one troubling issue related to Chinas Xinhua News Agency which she said operated as both the regulator as well as the competitor in its line of business.
She said the Xinhua issue was one of a series of financial issues raised with various ministries but not resolved.
Throughout the talks, Chinese officials made sure their views were heard and sometimes pushed back against US calls for China to speed up economic reforms.
Beijing declined to lift foreign-ownership caps in Chinese banks and brokerages and left US officials fuming over an apparent ban on US-made movies, which Schwab called a very serious matter.
Commerce Secretary Carlos Gutierrez said the United States was still trying to get clarification from China about the film ban and to have it lifted. We are all over it, he said.
Chinese officials went into less detail about the meeting.
Wu said the two sides had achieved satisfactory results and had gone beyond burning trade and economic issues of the day.
The next instalment of the dialogue would take place in Washington in June, she said.
Khaleej Times Online - US says China recognises need for stronger yuan