Paulson tempers expectations for China visit

Updated: 2006-12-07 12:54

As Treasury Secretary Henry Paulson prepares to lead a delegation to China, he is seeking to temper the expectations of lawmakers and business interests eager for action by Beijing.

Mr. Paulson is cautioning that he won't have any big announcement after the high-level visit next week, saying he views the meeting with Chinese leaders as the beginning of a "long term" discussion, and that simply sitting down to discuss economic issues with top Chinese officials should be seen as progress.

"This is the first session of a strategic dialogue where we're dealing with long-term issues," Mr. Paulson said in an interview in London last week. "Meaningful progress to me is being able to have a really substantive interchange where each side is not reading from a prearranged script and where there's listening and learning going on."

But Mr. Paulson is likely to come under increasing pressure from members of Congress and U.S. manufacturers, who want less talk and more action. They expect the secretary to press Beijing to move quickly with a number of economic overhauls, including adopting a more flexible currency.

While Mr. Paulson is just beginning to engage the Chinese in his role as Treasury secretary, the U.S. and China have long participated in bilateral relations, including two-way or multilateral commissions, dialogues, partnerships and forums addressing everything from trade policy to energy to health care.

"We've been having these conversations for quite some time and we'd better get going here," said John Engler, president of the National Association of Manufacturers.

The risk for Mr. Paulson is that if he doesn't deliver tangible results, protectionist urges in Congress could hamper his ability to negotiate with Beijing and complicate the efforts of U.S. business to compete globally.

In particular, manufacturing executives worry that unless China loosens its grip on the yuan and complies with international trade agreements, U.S. lawmakers will try to impose punitive measures that could limit access and trade. In the past few months, the Chinese have been allowing the yuan to rise against the dollar and the currency is now 5.7% stronger than it was in July 2005, when authorities initially allowed it to move. But that pace isn't fast enough to satisfy some critics.

Meanwhile, China's trade surplus in November reached $23.37 billion, just short of October's record, but high enough to continue inflaming concerns that China is keeping its currency artificially weak to gain an unfair advantage in global markets. China released the trade-surplus figure earlier than usual, ahead of Mr. Paulson's visit.

"The clock is ticking," said Sen. Charles Schumer (D., N.Y.), who has threatened to push Congress for a 27.5% tariff on Chinese goods if Beijing doesn't revalue its currency. "Paulson has a tremendous amount of goodwill, but no amount of talking is going to substitute for the Chinese doing something."

The pressure poses a challenge for the secretary, who is seeking to establish an economic dialogue between two countries, which historically have viewed one another with suspicion. While Mr. Paulson has said publicly that he wants China to move ahead "quickly" with its overhauls, many of the biggest tension points between the two countries will take more than a few conversations to resolve, such as opening China's markets to competition and moving it away from exports to promote more domestic consumption.

Expectations of Mr. Paulson's trip have been raised even higher by the makeup of the delegation accompanying him. When he heads to Beijing next week, he will be joined by Federal Reserve Chairman Ben Bernanke, a host of cabinet members, including U.S. Trade Representative Susan Schwab, Commerce Secretary Carlos Guitterez, dozens of aides, staffers and a phalanx of security. The U.S. delegation will meet with Chinese President Hu Jintao and Premier Wen Jiabao, in addition to Vice Premier Wu Yi, who was chosen by Mr. Hu to lead China's side of the talks.

Daniel Tarullo, a former adviser to President Clinton on international economic policy, said that while the U.S. has long been in discussions with Beijing about economic issues, the senior-level participation of the Paulson talks and their timing definitely raise the bar. "Secretary Paulson has framed expectations that this dialogue will produce positive results. He's been careful not to promise there will be a change in the exchange rate, but he cannot help but have expectations out there now," said Mr. Tarullo, a law professor at Georgetown University.

But even reaching accord on what will be discussed in next week's meetings took delicate negotiation. Treasury officials have been working with their Chinese counterparts to reach consensus on the topics and format of the talks, which will focus on such issues as China's economic overhauls, energy policies, health and access to China's markets.

And while Mr. Paulson has had extensive dealings with China as head of Goldman Sachs and in his environmental work there, policy experts say what happens in China is largely out of his control, particularly with regard to the country's currency.

"At the margin, he can contribute to the debate and the discussion in China, but it's primarily a domestic argument," said Nicholas Lardy of the Institute for International Economics, a Washington think tank. "The Chinese are deadlocked. They can't agree on a strategy so they're doing nothing."

That could further complicate Mr. Paulson's efforts, given that many in Congress say something needs to happen soon. Many new members elected in last month's midterm elections that brought Democratic control of the next Congress campaigned against free trade. And they seized on China in particular, floating such ideas as restricting imports or imposing restrictions or punishments for intellectual-property violations.

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