Currency impasse overshadows U.S.-China deals

Reuters

The United States and China struck civil aviation and financial sector access deals on Wednesday but they made no headway on the divisive issue of Chinese currency reform, stoking anger on Capitol Hill.

Lawmakers said they would move ahead with proposals to slap tariffs on Chinese imports because of Beijing's reluctance to redress the huge trade imbalance between the economic giants with a revaluation of the yuan.

The anger in Congress overshadowed U.S. Treasury Secretary Henry Paulson's claim of "tangible results" in the second leg of a "strategic economic dialogue" with Chinese Vice Premier Wu Yi.

Wu, for her part, said the "complicated" relations between Washington and Beijing needed careful handling and cautioned against retaliatory steps.

"It calls for direct consultation and dialogue between us, instead of easy resort to threat or sanctions," Wu said after two days of closed-door talks with Bush administration officials.

The official China Daily newspaper said in an editorial that both countries bore responsibility for the trade gap between them and warned against U.S. impatience for a rapid cure.

"The dialogue made it clear that a confrontational approach focusing on so-called immediate results only complicates the situation and adds nothing to problem solving," it said.

China's stellar economic growth was indeed too dependent on exports, the daily said, but it was also "all too obvious that the U.S. consumers spend too much and save too little, resulting in their country's current account deficit."

Tension was heightened during the talks by mounting concern about the safety of Chinese exports after reports about toxic toothpaste and contaminated pet food.

U.S. officials said they stressed to their Chinese counterparts that food and medicine safety was a "top concern."

"Recent events have forced very clearly as one of our top concerns the safety of food and medicine," Health and Human Services Secretary Mike Leavitt said.

CHINA "DOING ITS BEST"

The most concrete outcome of the talks was a deal committing China to remove a bar on new foreign securities firms and resume issuing licenses for securities companies, including joint ventures, in the second half of 2007.

That was a coup for former Goldman Sachs chairman Paulson, who has made gaining greater access to the Chinese financial sector a key objective.

The two sides also agreed on a new aviation pact that U.S. transportation officials said would more than double the number of passenger flights between the two countries by 2012.

Meanwhile, Chinese Vice Commerce Minister Ma Xiuhong said a Chinese business delegation on a 24-state U.S. tour had signed $32.6 billion in deals so far.

The buying spree appeared timed to soften U.S. congressional criticism of China's practice of managing its currency, the yuan, in a way that U.S. lawmakers and companies complain makes Chinese products unfairly cheap in U.S. markets.

But the chairman of the powerful House of Representatives Ways and Means Committee, New York Democrat Charles Rangel, said after a meeting between Wu and committee members that "we're moving forward" on tariff legislation.

Rangel favors a bill to let the Commerce Department levy duties on Chinese goods to offset the "subsidy" effect of China's exchange-rate policies.

Rangel's swift decision suggested that time was running out for Paulson to show that persuasion is sufficient to get China to permit the yuan to appreciate more quickly.

In July 2005, China abandoned an 11-year-old practice of holding the yuan fixed against the dollar and revalued it by 2.1 percent. But since then it has risen only a further 6 percent, frustrating U.S. legislators.

The head of China's central bank, Zhou Xiaochuan, said China had pressures of its own to deal with that made it hard to speed up currency reform.

"They may think that we can accelerate the speed of reform, but we think that we already try our best, and domestically we have pressure to slow down," Zhou told reporters after meeting the lawmakers.

China remains an emerging-market economy only partly driven by free-market forces, but its cheap labor force and exporting prowess have enabled it to become the world's fourth-largest economy, behind the United States, Japan and Germany.

Chinese Ministers, Bush to Meet on Trade

Associated Press

Preparing to meet President Bush, Chinese ministers sought to soothe congressional anxiety about Beijing's trade practices after high-level economic talks yielded few results.

Discussions Wednesday between senior Bush administration officials and the largest high-level Chinese delegation ever to visit the United States also failed to reach a breakthrough in the countries' biggest dispute: China's undervalued currency.

After the talks, Vice Premier Wu Yi, leading the Chinese group, met privately with frustrated congressional leaders. She also planned separate meetings Thursday with Bush and senators.

Wu, speaking through an interpreter, said Wednesday that her discussions with House Speaker Nancy Pelosi and other lawmakers were "very good," but she provided no other details.

After the meeting, Ways and Means Committee Chairman Rep. Charles Rangel said the Chinese told lawmakers they needed more time to overhaul their currency system and make other changes.

Rangel, a New York Democrat, told reporters that his committee planned to move forward with legislation; some of the bills being considered would impose stiff penalties on Chinese imports for what critics say are unfair Chinese trade practices that have driven U.S. trade deficits to record levels and cost thousands of manufacturing jobs.

Democratic Sen. Charles Schumer, a leading critic of China, described the frustration he said his colleagues felt. "There's never any action," he said in an interview. "I don't think a press release is going to assuage Congress' worries. We need results."

Despite the criticism, both Wu and Treasury Secretary Henry Paulson, head of the U.S. delegation at the talks, sounded positive about the importance of the new high-level "strategic economic dialogue" between the countries, which occur twice a year.

The delegations agreed Wednesday to more than double the number of daily passenger flights between the two nations by 2012, going from 10 to 23. Cargo flights also were increased. The gains fell short of the openings the Bush administration had hoped to achieve.

In the area of financial services, China agreed to a slight expansion in business opportunities for U.S. companies but not the lifting of caps on foreign ownership of banks, securities firms and insurance companies that U.S. firms had sought.

China also rejected U.S. requests that it accelerate the revaluing of its currency, the yuan, which American manufacturers contend is undervalued by as much as 40 percent. That makes Chinese products cheaper for Americans and U.S. goods more expensive in China.

For her part, Wu called the talks "a complete success" and said it was important to continue direct consultations between the two nations rather than resorting to "threat and sanctions."

U.S. business groups had a decidedly more downbeat response.

"It's clear that this dialogue has been nothing but a cynical Bush administration exercise in spin and public relations," said Kevin Kearns, president of the U.S. Business and Industry Council, which represents small and medium-size manufacturing companies. "The failure of the White House's approach is now clear, so the ball is clearly in Congress' court."