CNBC Exclusive: Paulson Pushes for Faster Yuan Flexibility

U.S. Treasury Secretary Henry Paulson said Tuesday China must move faster in accelerating the flexibility of its currency and increase access to its capital markets.

Paulson also told CNBC that the U.S. housing market correction is "largely behind us."

Speaking before the start of a trade talks with China in Washington, Paulson told "Squawk Box" that Beijing's decision Friday to widen the trading limit of the yuan, also known as the renminbi, was a positive, useful step, but "we would like to see it move even more."

"The key is going to be the amount of flexibility of the renminbi on a daily basis and then over time," he said.

Paulson also said that China's high-flying stock market, up 52% for the year, would benefit from allowing more international investment and greater access to financial services companies.

"Capital markets in China are not yet reflective of or representative of their economic success and it will benefit them to develop a more sophisticated institutional market," he said. "And when they open up and let some of the very best firms in the world participate in the market."

Chinese Delegation to Talk with Congress

It is also important for the Chinese delegation to meet with critics in Congress, who contend that its exchange-rate policy favors Chinese exporters and boosts the country's trade surplus.

Sens. Charles Schumer, D-N.Y., Lindsey Graham, R-S.C., Max Baucus, D-Mont., and Charles Grassley, R-Iowa, have said they are working on a China currency bill and plan to introduce it in June, according to the Associated Press.

"I wanted the Chinese to be here at a time when Congress was in session, because I thought it was very important for the Chinese to have a dialogue with key members of
Congress to hear what Congress is thinking, and for Congress to get to know the Chinese leaders better," Paulson said.

"I've explained to the Chinese how our system works, and I've explained the Congress is reflecting the sentiment of the American people," he said. "The American people don't believe the benefits of trade are being shared evenly or fairly."

Housing Contraction 'Contained'

Turning to domestic matters, Paulon said the housing market correction is "largely contained" but will take time to play out.

While declining to say whether he was bullish or bearish, the Treasury secretary said he is "encouraged" by what he sees globally: strong economic growth, relatively low interest rates and inflation that is generally contained.

Paulson also added that he agreed with General Electric CEO Jeff Immelt's assessment on CNBC Monday that the flood of private-equity deals is largely to cheap money and a historically low risk premium.

© 2008 CNBC.com