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Paulson Still Trying to Persuade China to Float Yuan

U.S. Treasury Secretary Henry Paulson said on Thursday he will keep trying to persuade China to let markets set the value of its yuan currency, but this will not eliminate the U.S. trade deficit with China.

Paulson, speaking in a taped interview, said the currency and efforts to open China's economy up to foreign competition would be subjects of discussion at next week's economic summit with Chinese officials in Washington.

"They agreed they need to appreciate their currency. They're doing so," Paulson said. "They're not doing it quickly enough. And so we're attempting to persuade them that it is very much in their best interest and in ours for them to speed up that process."

Many economists and U.S. lawmakers believe the low level of the yuan, which is artificially pegged to the U.S. dollar, hands Chinese manufacturers an unfair advantage, allowing them to undercut prices for U.S. made goods and adding to the massive U.S. trade deficit with China and costing U.S. jobs.

But Paulson said a market-determined yuan currency would not wipe out the trade deficit with China.

"I have not talked with any experts that disagree with the point I'm going to make to you, and that is, if the currency had appreciated to whatever level was the level that reflected economic value, we would still have a big trade deficit with China, because the trade deficit with China is driven by structural considerations," Paulson said.

These include an extremely high saving rate, domestic consumption that was not strong enough to help U.S. exports, and an underdeveloped financial services sector that does not provide an adequate return on Chinese savings.