Enlarge imageBy Glenn Somerville
BEIJING (Reuters) - U.S. Treasury Secretary Henry Paulson said on Friday that China’s reluctance to let its currency appreciate remained a core bilateral issue but claimed some progress in talks on reducing trade imbalances.
At a news conference after two days of talks and meetings with Chinese Prime Minister Wen Jiabao and President Hu Jintao, Paulson said he had told Chinese officials "in the clearest possible terms" it needed to move towards currency flexibility.
He said an inaugural session on Thursday and Friday of a "joint economic dialogue" between the two countries found agreement on "fundamental principles", including the need for balanced growth without large trade imbalances.
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The United States’s soaring trade deficits have their counterpart in Chinese surpluses racked up by exporting to U.S. consumer markets. That raises the ire of U.S. lawmakers who say an undervalued Chinese yuan allows Chinese products to be priced so low that American companies cannot compete.
"China’s currency policy is a core issue in our economic relationship," Paulson said. "We have indicated to the Chinese in the clearest possible terms that more flexibility in their exchange rate will help China achieve more balanced economic growth" and have more control over its own monetary policy."
Paulson was joined on a podium by six other cabinet officers who were part of the high-powered U.S. delegation, though Federal Reserve Chairman Ben Bernanke who also was a member left Beijing early.
TIMING AN ISSUE
The U.S. Treasury chief said there were differences about whether Beijing could speed up the pace of reform.
"We have a point of view that there’s more risk in going too slowly than there is in going too fast, and the Chinese see that differently," Paulson said, noting growing protectionist sentiment that he said added urgency to the reform process.
The tangible results of the talks, which will resume in May in Washington, were modest.
China agreed to let the New York Stock Exchange and Nasdaq open offices in Beijing, while Washington gave the green light for China to join the Inter-American Development Bank.
Paulson earlier claimed agreement on the direction of the steps each side needed to take.
"We will each take measures to address global imbalances, notably through greater national savings in the United States and through increased domestic consumption and exchange rate flexibility in China, and maintaining open investment in both countries," he said.
The leader of the Chinese delegation, Vice Premier Wu Yi, said the discussions had been very successful and would help to boost trade and economic relations. She said the two sides had not seen eye to eye on every issue, but that was understandable given the economic differences between the two countries.
Paulson wants to lay a foundation to tackle complex sets of issues over the long haul. He is under pressure to deliver progress in the form of a faster rise in the yuan -- a litmus test for many of China’s commitment to market reforms.
The yuan is also called the renminbi or RMB.
Bernanke said a stronger yuan would enhance China’s future growth and stability by giving the central bank more control over monetary policy.
In prepared remarks, Bernanke said an undervalued yuan represented an "effective subsidy" to Chinese exporting firms but he dropped the reference to subsidies when he spoke to the Chinese Academy of Social Sciences, a leading think-tank.
A Fed spokesperson said later that Bernanke decided on his own to alter his text to make clear he was referring to the fact that an undervalued currency affects corporate decisions about production.
LAWMAKERS CHIME IN
The talks occurred against a background of new U.S. calls for speedier Chinese action to let the yuan appreciate.
"We cannot continue to wait for this longer-term goal and suffer the consequences of insignificant short-term action," Sen. Christopher Dodd, the Connecticut Democrat who will chair the Senate Banking Committee next year, and Alabama Sen. Richard Shelby, the outgoing Republican chairman, said in a statement.
They said experts estimated the yuan was undervalued by as much as 15 to 40 percent, costing American job losses by making Chinese-made goods unfairly cheap in America’s consumer markets.
China freed the yuan from a dollar peg in July 2005, and on Friday the central bank set the currency’s mid-point at a new post-reform high, 7.8185 per dollar, for the second day in a row.
Before leaving Washington, Paulson had played down expectations of dramatic results from the first round of talks with Chinese officials. That seemed to keep markets calm and the dollar made modest gains against Asian currencies on Friday.
China pushed back against U.S. claims that it was laggard in the pace of its economic reforms.
Wu on Friday again questioned Americans’ "limited knowledge" of China’s efforts to give market forces greater sway over the economy, while the People’s Daily, the official paper of the ruling Communist Party, said the United States had China to thank for a long period of low inflation.
(Additional reporting by Chris Buckley and Zhou Xin)
