BEIJING—The Bush administration sent a high-powered, smooth-talking negotiating team here, but on Friday the U.S. side came up against an iron-willed vice premier who offered only vague assurances that China someday would let market forces decide the value of its currency.
In polite language, the two sides said they agreed on what steps to take to address huge Sino-U.S. trade imbalances, yet differed markedly on when to take them.
Treasury Secretary Henry Paulson, a former Wall Street banker with extensive experience in China, said he and his Chinese counterpart concurred that China must expand market reform to ensure sustained, stable economic growth.
"Where there is a difference is on the speed of that reform," Paulson said. "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 he was unable to win a timetable for how Beijing would make the value of its currency float, a lightning-rod issue on Capitol Hill, where some legislators say the Chinese yuan is undervalued, giving Chinese industry an edge and costing U.S. jobs.
China freed the yuan from a dollar peg in July 2005, but has kept the exchange in a tight band, allowing a gain of just 3.74 percent since then. U.S. manufacturers complain that China is keeping the yuan artificially low to power its export-driven economy.
The U.S. trade deficit with China, which is expected to grow to $229 billion for 2006 from $202 billion last year, has allowed China to build up $1 trillion in foreign currency reserves.
Friday marked the close of an inaugural two-day strategic economic dialogue that saw Paulson and five other Cabinet secretaries deployed across Beijing and Federal Reserve Chairman Ben Bernanke speaking at a local research center, where he praised China's "strong economic performance" and offered prescriptions to make its expansion endure.
Echoing Paulson, Bernanke warned that the rapid economic growth of the past two decades may falter and instability might grow if China doesn't free its capital and labor markets and end wasteful investment.
The Treasury secretary and the Fed chief rarely travel overseas together, and the "Hank and Ben Show" amounted to a major U.S. push on China to relax its grip on its exchange rate.
But the duo came up against Vice Premier Wu Yi, who complained that "some American friends not only have a limited knowledge of, but harbor much misunderstanding about, the reality in China."
Vice Premier Wu Yi said the meetings were useful and led to some consensus, "but of course a number of differences remain."
She added: "China and America are two completely different countries. The economic structures are different, the value systems are different, so it is natural to have this or that kind of disagreement. The key lies in what attitude is embraced to address those differences."
Paulson balked when he was asked to outline the concrete results of the dialogue.
"If you want immediate results, then it's not realistic. It's going to be relatively modest things," he said, adding later, "Time will tell."
He noted that China had agreed to let the New York Stock Exchange and the NASDAQ exchange open offices here without further formalities.
In a final statement, the two sides said the United States must address a low national savings rate at the same time that China tries to increase domestic consumption, both underlying issues in the lopsided trade relationship.
In his speech, Bernanke stayed away from diagnosing the U.S. economy's troubles, but lauded China for pulling 200 million of its citizens from poverty since its market reforms began in 1978.
He said, though, that China must retool from an export-driven economy to one with strong domestic consumption to help weather any global uncertainty. He also said China should jettison its price controls on fuel and electricity and let market forces foster more efficient use of energy.
President Bush agreed with President Hu Jintao in September to boost interaction on contentious trade issues to twice-a-year strategic economic dialogues.
The second session will be in Washington next May.
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(c) 2006, McClatchy-Tribune Information Services.
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