07/30/2007, 00.00
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US secretary in China to avoid trade war

Paulson calls for dialogue and patience, but US Congress threatens retaliatory measures against Beijing if it does not stop keeping the yuan too low. But China does not want to lose its export advantages a low yuan provides, especially now that inflation is rising. Agreement might be possible on product piracy and entry into China’s financial sector.

Beijing (AsiaNews/Agencies) – US Treasury Secretary Henry Paulson arrived on Sunday in Xining, capital of China's Qinghai Province at the start of a four-day visit that includes a meeting with President Hu Jintao and Deputy Premier Wu Yi.

Topping Mr Paulson's agenda will be the mainland's massive trade surplus with the US and Beijing's currency reform. But whilst US lawmakers want significant movement and immediate results the trade secretary is preaching patience.

US critics say Beijing has kept the yuan undervalued by up to 40 per cent, giving its exporters an unfair price advantage and adding to the mainland's swollen trade surplus.

High level talks began last December between US and Chinese trade officials but have so far produced no tangible results. The last meeting in May ended with no progress.

Beijing re-valued the yuan a little bit against the US dollar in July 2005 and wants to introduce a mechanism that would automatically adjust its value, but in two years it has allowed its currency to rise by about 7.2 per cent.

Beijing says the yuan will eventually be allowed to trade freely on world markets, but claims that abrupt changes would hurt its underdeveloped banking industry and cause financial turmoil.

Analysts expect Beijing to let the yuan rise by an average of about 5 per cent annually over the next few years, far less than critics want.

Members of Congress are running out of patience and might adopt measures that would punish Beijing for manipulating the yuan.

Despite Paulson’s opposition a Senate panel on Thursday has overwhelmingly approved legislation that would give the United States additional tools to pressure China and other countries accused of manipulating the value of their currencies.

Experts note that China’s economy expanded by 11.9 per cent last quarter and its trade surplus in June was US$ 26.9 billion.

Beijing's standing on trade has been hurt by its disastrous string of unsafe food and medical products exported to the United States and elsewhere.

In China inflation is rising, especially food and housing prices, widening the gap between the rich and the hundreds of millions of poor. Rising prices are putting pressure on labour costs which was China’s winning card in attracting foreign investment up to now.

Secretary Paulson’s trip will include a ‘tourist’ side with excursions to the Tibet plateau and visits to Qinghai Lake’s environmental protection initiatives, event that might be intended to downplay the talks.

Washington is trying to show that it is also interested in China’s plans to fight global warming. During his stay Paulson will in fact exchange views on the US-China strategic economic dialogue, and cooperation on energy and environmental challenges, China's Foreign Ministry spokesman Liu Jianchao said on Thursday.

Experts don’t expect Beijing to heed US complaints to re-value the yuan. They expect though that Paulson (a China expert with more 70 trips to the country) might make some progress in the areas of product piracy and barriers to foreign entry into China’s financial industries.

But in the United States companies are split over how to deal with China. Small and mid-size manufacturers are demanding an end to what they say are unfair advantages like China’s currency policy. Larger companies that do business in and with the mainland are urging caution, warning against any steps that might disrupt ties.

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