Top officials from China and the United States concluded two days of talks on
economic disputes Friday by setting up several study groups and making general
pledges, but avoiding any sign of concrete progress on the principal American
demand that China stop undervaluing its currency as a way to promote exports.
Despite the lack of specific pledges on currency and other issues, Treasury
Secretary Henry M. Paulson Jr. declared that the strategic economic dialogue
involving several cabinet-level officials and the Federal Reserve chairman would
pave the way for progress in the future.
Mr. Paulson asserted that as a result of the talks, China would move to open
its economy and enforce intellectual property rights, and would adopt "greater
flexibility" in exchange rates. The United States, he said, would strive to
increase its savings rate so that it borrows less from China to feed an
addiction to imports.
"While we cannot resolve every difference we have had," Mr. Paulson said,
"the candid conversations we have had will make progress much more achievable."
Also on Friday, Ben S. Bernanke, the Federal Reserve chairman, in a comment
likely to draw attention in Washington, called the undervalued yuan an
"effective subsidy" for China's exports. The use of the phrase may be seized
upon by critics of China in Washington who are demanding some sort of
The working groups established will encompass health care, aviation, energy
and the environment, and will try to clarify regulatory processes in both
country as well as remove obstacles to investments.
China's currency policy will continue to be discussed in existing groups,
American and Chinese officials said. But the Americans noted that China had
allowed the yuan to rise in value by 5.8 percent against the dollar in the last
18 months in what could be a response to American pressure.
"We have seen some greater flexibility of late, and will continue to press
for more in the future," said a senior Treasury official said.
The closing ceremony on Friday capped an unusual two-day dialogue behind
closed doors on economic issues, promoted clashing visions of how quickly China
should move to modernize its economic policies to resolve tensions with
In marathon meetings at the Great Hall of the People, Mr. Paulson led an
elaborate effort by the United States to persuade China to reform its policies.
Though American officials argued that a faster pace of reform was in China's
interest, Chinese officials countered that their country must proceed at its own
pace, given its history of poverty, colonial subjugation and civil wars, and
that American officials must try harder to understand China's constraints and
The divergent perspectives were recounted during and after the daylong
session by American officials who briefed reporters, but they were also
reflected in the opposing statements of Mr. Paulson and his counterpart, Wu Yi,
a vice prime minister, who gave a lengthy talk that was both defensive and
Ms. Wu's comments, accompanied by a PowerPoint presentation and pictures
illustrating 5,000 years of Chinese history, were clearly directed not simply at
her audience sitting across from the Chinese delegation but also at Congress,
where anti-Chinese protectionist measures are being readied in case Mr. Paulson
does not win concessions.
"We have had the genuine feeling that some American friends are not only
having limited knowledge of, but harboring much misunderstanding about the
reality in China," Ms. Wu said in her presentation, according to a text released
by her government.
"Our particular hope," she added, "is to let people in the world know that
China's development is an opportunity instead of a threat to the world, that it
is a propelling force behind the growth of the world economy."
Mr. Paulson's keynote address called for "tangible results" from the
strategic economic dialogue. His aides said he was talking about a timetable of
two years, not this week.
Ms. Wu said that China's reforms were speeding faster than her listeners
appreciated. Her colleagues cited a barrage of statistics, showing for example
that spending by Chinese consumers was already transforming China into a country
more reliant on domestic spending than exports for growth.
opening up are the most distinct characteristics of contemporary China," she
said, while emphasizing that China would maintain a "socialist market economy
system" with government ownership its "mainstay." There was no indication that
she felt China needed to change that system faster than it was doing already.
The issue of currency reform was cited several times, American officials
said. Mr. Paulson opened the Thursday morning session by again urging that China
let its currency float freely so that it could rise in value against the dollar,
making Chinese exports more expensive for Americans to buy.
In his comments, Mr. Bernanke said that letting the yuan float would be
beneficial for China's economic growth and for allowing its central bank a freer
He explained that to keep the value of Chinese currency low to promote
exports, China has to buy dollars and flood the country with local currency.
This would produce inflation, so China instead sells bonds and bills to Chinese
to "sterilize" the economy from inflation brought on by an oversupply of money.
It was a highly theoretical discussion from the Fed chief, delivered at a
prestigious government-financed policy institute, the Chinese Academy of Social
Sciences. Because it was a sophisticated analysis of how markets work, it may
have more of an impact on Chinese leaders than the preaching about capitalism
they have heard from the Bush administration in the last two days.
As if anticipating the American appeal, the yuan did rise against the dollar
on Thursday, to 7.8197 yuan to the dollar, bringing its appreciation to well
over 5 percent since mid-2005. Many economists say that if the yuan were to
float freely in the markets, it would rise 20 percent or more.
The United States contends that China has for years kept the yuan's value
artificially low by buying up the dollars earned by Chinese corporations and
husbanding them as reserves. At present, China has an estimated $700 billion in
Several American officials said that the toughest talk on Thursday came from
Susan C. Schwab, the United States trade representative, who went through a
litany outlined in a report her office issued on Monday, saying that China was
"backsliding" in its obligations to the World Trade Organization to open its
Ms. Schwab said the theme of her presentation was that the "Asian model" of
state control of the economy and huge exports was no longer suitable for China,
which now needs to focus on domestic consumption rather than exports to achieve
American officials said that thesis was disputed by Ma Kai, chairman of the
National Development and Reform Commission of China, and others who argued that
China's model of mixing state control and free markets was more appropriate
given the country's volatile history.
Economists say Chinese do not consume goods because they save a larger
portion of their income than Americans.
The Chinese had their own bill of particulars, American officials said. China
contends that the United States unfairly accuses it of dumping low-cost exports
into American markets, and it also wants the United States to lift a ban on
sales of high-technology products to China.
Courtesy of nytimes.com