US, China Headed For Possible Clash Over Currency
BEIJING — China's chief trade envoy urged Washington on Thursday to stabilize its economy and protect Beijing's U.S. investments as the two sides opened economic talks overshadowed by the global financial crisis and tensions over currency.
"We hope the U.S. side will take the necessary measures to stabilize the economy and financial markets, as well as to guarantee the safety of China's assets and investments in the United States," Vice Premier Wang Qishan told U.S. Treasury Secretary Henry Paulson and other U.S. officials at the Strategic Economic Dialogue.
Wang did not elaborate. But Beijing is a major owner of U.S. Treasury debt that finances Washington's budget deficit, and the dollar's recent weakness and U.S. financial turmoil have fueled Chinese anxiety about the safety of such holdings.
The twice-a-year dialogue, launched in 2006, is meant to address the long-term growth of U.S.-Chinese economic ties. But this round also is due to touch on how to manage macroeconomic risk and Paulson is expected to press Beijing to let its currency, the yuan, rise to ease trade tensions. Still, no breakthroughs were expected in the most sensitive areas such as trade.
American companies contend the yuan is kept undervalued, giving China's exporters an unfair advantage and adding to its trade surplus. Some American lawmakers want to punish Beijing if it fails to act faster on easing exchange-rate controls.
The yuan has risen 20 percent since Beijing cut its peg to the dollar in July 2005. But it has fallen this week in government-controlled trading _ including a nearly 1 percent decline Monday, its biggest one-day drop in three years _ in what analysts suggested was a message from Beijing to go easy on the issue.
The yuan's recent drop might have been meant as a warning to President-elect Barack Obama, that talks will be more effective than confrontation, said Frank F.X. Gong, chief Asia economist for JPMorgan Securities Ltd.
Obama has yet to say whether he will continue the dialogue. Some analysts have speculated that Obama and the U.S. Congress will take a harder line on China.
"The signal China sent on Monday is: We also have our own political problems and issues in a slowing economic environment," JP Morgan's Gong said in a note to clients.
Standard Chartered Bank said Thursday it expects Beijing to keep the currency steady or let it fall slightly against the dollar in early 2009 to mollify Chinese exporters, who have been hit by weakening global demand.
Paulson said he hopes to reach agreement on cooperation in energy, environmental protection and other areas at the two-day talks at a government guesthouse. But neither he nor Wang mentioned the currency dispute in their opening remarks.
"Our meetings this week will focus on the building blocks for an enduring U.S.-China economic partnership," Paulson said. The meeting is his last as envoy to the talks as part of outgoing Bush administration.
Both economies are struggling _ the United States with a recession and China with a sharp slowdown in growth. How well they can maintain one of the world's biggest trading relationships is of global importance.
The chairman of China's sovereign wealth fund said Wednesday in Hong Kong that the fund is reluctant to invest more in foreign banks until governments work out coherent policies to cope with global turmoil. The official, Lou Jiwei, said governments around the world seemed to be changing policies every week.
China has said its biggest contribution to world stability will be to keep its own economy growing strongly. Beijing has launched a 4 trillion yuan ($586 billion) stimulus package meant to revive slowing growth through heavy spending on construction and other projects.
China's economic growth is expected to slow this year to about 9 percent, down from last year's 11.9 percent. Communist leaders worry about rising job losses, especially in export industries, and the possibility of unrest.
Paulson's delegation includes the U.S. secretaries of agriculture, labor and health, the U.S. trade representative, officials of the Treasury and Commerce departments, and others.
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JOE McDONALD | December 3, 2008 11:38 PM EST |
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