- The Washington Times - Friday, September 22, 2006

BEIJING (AP) — Treasury Secretary Henry M. Paulson Jr. met yesterday with China’s president and prime minister and said they agreed on reforms the country should undertake, but there was no sign of progress on currency and trade disputes as he wrapped up a four-day visit.

Mr. Paulson described his meetings with President Hu Jintao and Prime Minister Wen Jiabao as positive, though he said they didn’t agree on a timetable for reform. He wouldn’t say whether they discussed U.S. complaints about Beijing’s mounting trade surpluses and currency controls.

“Their enthusiasm was very encouraging,” Mr. Paulson told reporters before he left for Washington. “I find it quite encouraging that there are very few issues — I can’t think of any — where there were differences on the principles. Where there are differences is on timing.”

The former Goldman Sachs chairman visited China amid U.S. pressure for Beijing to raise the value of its currency, the yuan. Critics say the yuan is undervalued, giving China’s exporters an unfair advantage and adding to its trade surplus with the United States, which last year reached a record $202 billion.

Mr. Paulson warned earlier against expecting breakthroughs from his first trip to China as Treasury secretary. He said his goal was to start a long-term economic dialogue — a position that appears certain to frustrate U.S. lawmakers, who want him to push Beijing for faster action to raise the yuan’s value.

The two governments announced a formal dialogue mechanism this week that calls for Mr. Paulson and a Chinese vice prime minister, Wu Yi, to meet twice a year to discuss major economic issues. They didn’t say whether talks would include the currency, but the U.S. government said it would still press Beijing over that, as well as protection of intellectual property and other issues.

Mr. Hu, who also is general secretary of the Communist Party, greeted Mr. Paulson warmly, noting that he had visited China dozens of times during his years on Wall Street.

“You’re an old friend,” Mr. Hu said.

“You’ve contributed a lot to the long-term financial cooperation between China and the United States. I appreciate that.”

Mr. Hu spent 45 minutes with Mr. Paulson — an unusually long meeting for the Chinese leader with a foreign Cabinet official. It reflected the extreme importance to Beijing of smooth trade and financial relations with the United States.

Mr. Paulson has stuck to a conciliatory tone with Beijing, avoiding publicly pressuring communist leaders and stressing the benefits of reform for ordinary Chinese.

He said this week that he would try to persuade two key American senators to drop proposed legislation to press for an end to currency controls by raising tariffs on Chinese goods.

Sens. Charles E. Schumer, New York Democrat, and Lindsey Graham, South Carolina Republican, called last week for a vote on a bill that would slap a 27.5 percent tariff on Chinese imports unless Beijing takes steps to loosen its currency policy.

Yesterday, the yuan’s value in tightly controlled trading creeped up to its highest level against the U.S. dollar since Beijing revalued its currency 14 months ago. The official dollar-yuan rate was set at 7.9188 yuan per dollar yesterday, compared with 7.9264 on Thursday.

Traders cited by Dow Jones Newswires said earlier that Beijing might have allowed the rise to relax the atmosphere of Mr. Paulson’s visit. But they also noted that the dollar’s decline against the yuan mirrored its recent weakness against other currencies.

China ended the yuan’s direct link to the dollar in July 2005 and raised its value by 2.1 percent. But it has been allowed to creep up by just 2.2 percent against the dollar since then.

On Thursday, central bank Gov. Zhou Xiaochuan said China plans to end exchange controls on the yuan and open its financial markets, but gave no timetable, the government’s China Daily newspaper reported.

“We will continue our efforts to develop our financial market and widen it gradually,” Zhou was quoted as saying. He said Beijing will “push for the free convertibility of the yuan in a stable manner.”

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