China Tells Paulson Strategic Talks Build Trust


China reaffirmed its commitment on Wednesday to regular high-level talks with the United States that visiting Treasury Secretary Henry Paulson hopes will help to pry open Chinese markets and speed the yuan's rise.

Henry Paulson

Paulson began two days of talks in the Chinese capital by meeting newly promoted Vice-Premier Wang Qishan, who is taking charge of the U.S.-China "Strategic Economic Dialogue" (SED) that the Treasury chief was instrumental in launching in 2006.

Wang told Paulson that the new Chinese government, formally installed last month by the annual session of parliament, highly valued constructive and cooperative ties with the United States.

China attached particular importance to the twice-yearly SED, which addresses a spectrum of long-range issues ranging from energy saving to financial liberalization, said Wang, a former mayor of Beijing.

"We have reached a lot of common understandings, increased our mutual strategic trust and also made important contributions to promoting the steady growth of China-U.S. business relations and China-U.S. relations as a whole," Wang said of the three SED sessions that have taken place so far.

Paulson, speaking before reporters were ushered out of the room, said he looked forward to working with Wang and to preparing the next two rounds of the SED.

The next meeting is scheduled for June in Washington.

While economic issues are the focus of Paulson's visit, U.S. officials have said the touchy issue of Tibet will also come up.

In Washington on Tuesday, the speaker of the U.S. House of Representatives, Nancy Pelosi, left open the possibility that heads of state should boycott the opening ceremony of August's Olympic Games in Beijing because of the way China has dealt with recent deadly rioting in Tibet.
Yuan On The Rise

Paulson is due to meet President Hu Jintao later on Wednesday, but U.S. officials have offered no guidance about specific issues he will raise with the Chinese leader, who has said security for the Olympics is a top priority.

Paulson was a China veteran long before taking over the helm of the Treasury in mid-2006, making dozens of trips when he was chief executive of Wall Street investment bank Goldman Sachs, and enjoys exceptional access to China's leaders.

Paulson's Beijing Agenda

The Treasury chief has emphasized the need to use diplomacy to convince China that it is in its own interest to open its markets wider and let the yuan rise more swiftly.

The Chinese central bank has in fact let the yuan climb much more quickly in recent months.

The currency gained 4 percent against the dollar in the first quarter, compared with 6.86 percent in all of 2007, as China used a stronger exchange rate as one of the tools to fight inflation, which is at a near 12-year high of 8.7 percent.

However, Tao Wang, head of Greater China economics with Bank of America in Beijing, said she did not expect this pace to last.

"Once the current inflation pressure abates and weak export numbers become obvious, the yuan/dollar adjustment is expected to slow," she said in a report released on Wednesday.

Nor was any major change to China's exchange rate policy likely to be announced either during Paulson's visit to China or at next week's meetings in Washington of the International Monetary Fund and the Group of Seven industrial nations.

"Given the uncertainties regarding the dollar and U.S. financial market, the exchange rate-related discussions in these meetings will likely be much more centered on dollar movements than yuan appreciation," Wang wrote.