Treasury Secretary Hank Paulson Urges Chinese to Quicker Economic Reforms

WASHINGTON – Treasury Secretary Henry Paulson said last week the Chinese need to move more quickly on economic reforms because the rest of the world is growing impatient and protectionist pressures are rising.

Paulson said that is the message a high-level delegation of administration officials will deliver to the Chinese during two days of talks next week in Beijing.

Paulson will be joined by Federal Reserve Chairman Ben Bernanke and six other top members of Bush's economic team in the first meeting of what is being dubbed a Strategic Economic Dialogue.

"A big part of the dialogue is to persuade the Chinese to accelerate the pace of their reform," Paulson said in an interview on CNBC. "They are a global economic leader and the rest of the world isn't going to give them a lot more time."

Paulson's comments came on a day when the administration previewed a report it will send to Congress next week which charges that China is failing to live up to a number of the market-opening commitments it made when it joined the World Trade Organization five years ago.

A senior U.S. trade official, who briefed reporters on condition of anonymity because the report will not be sent to Congress until Monday, said the administration had a number of concerns because of a slowdown in Chinese reforms and in some cases outright backsliding in its market-opening commitments.

The official said the 100-page report raised concerns in the three broad areas of widespread copyright piracy, Chinese industrial policies that favor domestic companies and a failure by China to fulfill its WTO commitments to open its economy to foreign competition.

"We are seeing troubling indications that China's momentum toward reform has begun to slow," the U.S. trade official said in a briefing for reporters.

In addition to Paulson and Bernanke, the U.S. team will include four other members of Bush's Cabinet — Commerce Secretary Carlos Gutierrez, Labor Secretary Elaine Chao, Energy Secretary Samuel Bodman and Health and Human Services Secretary Mike Leavitt. U.S. Trade Representative Susan Schwab and Stephen Johnson, the head of the Environmental Protection Administration, will also be on the trip.

Paulson said the goal for the talks on Dec. 14 and 15 was to develop a game plan for tackling various issues.

"I am looking forward to coming out of these sessions with a good understanding of the issues that we need to address and a workplan going forward to begin addressing those issues," he said.

He did not specify how soon he would hope to see results.

But with America's trade deficit with China on track to surpass last year's $202 billion, which had been the largest imbalance ever recorded with a single country, it is not clear whether critics of the administration's trade policies will be satisfied to give Paulson much time, especially since some of the toughest complaints are coming from Democrats who will be in control of both the House and Senate next year.

"I think Paulson is taking a very risky course. He is raising the stakes by taking such a big and powerful group with him," said Nicholas Lardy, a China expert at the Peterson Institute for International Economics, a Washington thinktank.

Paulson held a series of meetings this week with major U.S. interest groups designed to get their input. The National Association of Manufacturers stressed that its top priority is pressuring China to deal with its currency, which American companies believe is undervalued by as much as 40 percent, which widens the trade deficit by making China's goods cheaper and more attractive in the United States and American products more expensive in China.

China announced in the summer of 2005 that it would let its currency rise against the dollar, but since that time the yuan has appreciated in value by only 5.8 percent.

Frank Vargo, NAM's vice president for international trade, said the yuan needs to rise in value at a faster pace to keep protectionist pressure from building in the new Congress.

Bernanke, who has been enlisted to give a speech on China's economy at the Chinese Academy of Social Sciences, has been making the point that it is in the best interests of the Chinese to allow more flexibility in the yuan.