U.S. delegation to press China for change in economic policies

Posted in China , United States | 23-Nov-06 | Author: Steven Weisman| Source: International Herald Tribune

Treasury Secretary Henry M. Paulson Jr., left, has invited the Fed chief, Ben S. Bernanke, on his China trip next month. The two have traveled on economic missions before, here at a Group of 7 meeting in Singapore.

Top officials to join push for changes in economic policies

WASHINGTON: Treasury Secretary Henry Paulson Jr. has enlisted Ben Bernanke, the Federal Reserve chairman, to join an unusual high-profile delegation of U.S. cabinet members to China next month to press for changes in Chinese economic policies long criticized by the Bush administration and Congress, officials said.

The trip, to be led by Paulson, a former Goldman Sachs executive with extensive experience in China, increases the pressure on the Beijing leadership to crack down on piracy, open up its economy to outside investors and allow the value of the Chinese currency to fluctuate more freely, Treasury officials said.

These steps, long demanded by Democrats and Republicans in Congress, are being sought by the United States and European countries as a way of reducing China's huge trade imbalances with the West. Because China exports far more than it imports, its reserves of foreign currencies will be approaching $1 trillion in coming months.

Bernanke is not expected to join in any direct pressure applied by the Bush administration, officials said Wednesday. Rather, he is expected to repeat what he and other central bankers have been saying in recent years - that the U.S. trade and current-account deficits with China and other trading partners are not "sustainable" in the long run.

Paulson's trip, and the fact that he is to be accompanied by Bernanke, who as chairman of the Federal Reserve is supposed to be independent of the administration, is aimed at getting the Chinese to take Western demands more seriously. But it also has the effect of putting pressure on the U.S. Treasury chief to get results from the Chinese.

"This is such a high-level delegation that it's going to raise the bar for China, especially on issues of currency, by demonstrating the breadth of our economic interdependence," said Michael Green, a former director of Asian policy under President George W. Bush. "It's a smart strategy by Paulson, and it's showing the Chinese enormous respect."

But Green, a scholar at Georgetown University and the Center for Strategic and International Studies in Washington, added that "by the same token, Paulson was putting enormous pressure on himself to deliver."

Bush administration officials say they recognize that in the new Congress, led by Democrats, anger at China will quickly reach a fever pitch if Beijing does not take further action to ease the trade imbalances brought about by the flood of cheap Chinese exports that many politicians blame for throwing Americans out of work.

Representative Nancy Pelosi, the California Democrat who, beginning in January, will serve as speaker of the House, has been a vocal critic of Chinese economic policies and also of its human rights record. But Republicans in Congress have also declared a loss of patience over what they regard as predatory Chinese economic policies.

Senators Charles Schumer, a New York Democrat, and Lindsey Graham, a South Carolina Republican, yielded to pressure from Paulson this year and withdrew a bill that would have threatened China with increased tariffs if it did not let the value of its currency rise in the open markets.

A higher value of the Chinese currency, the yuan, would make exports to the United States more expensive and imports cheaper, presumably reducing the trade deficit.

But Schumer and Graham said they would come back with another form of the legislation in the coming year if China did not respond more positively to the economic pressures from the United States.

In an interview, Schumer praised Paulson for organizing the trip with Bernanke, saying "the more the merrier" when it came to sending a message to Beijing.

"Nothing has gotten the Chinese to budge so far," he added. "Taking such a large delegation is a demonstration of how important this is. The liability is that if Paulson goes with all these people and once again brings back nothing, it's going to turn up the heat in Congress."

Paulson's strategy, according to his aides, is to engage the Chinese on a broad range of issues so that progress on some might lead to progress on others.

The Treasury Department has not announced who is going, but administration officials say the delegation is to include Susan Schwab, the U.S. trade representative; Energy Secretary Samuel Bodman; Commerce Secretary Carlos Guttierez, and Michael Leavitt, secretary of health and human services.

Paulson won approval from Bush to lead an inter-agency group of these and other officials to negotiate with China on such matters as piracy - of software, name-brand designer goods and pharmaceuticals - and on steps that would allow European and American banks to expand their operations for Chinese customers.

On the energy front, the Bush administration wants to join with the Chinese to talk about sharing technology - and possibly encouraging American investment - in conservation efforts and energy-saving equipment. In the environmental area, China has expressed an interest in American techniques for cleaning up air and water. And in health, the United States is eager to help China with immunization and disease- prevention programs.

All these steps could lead to the more immediate gains of getting China to adjust its major economic policies that have run up trade deficits with the West.

The major steps the United States is encouraging are meant to help the Chinese to set up education and pension systems and social welfare programs so that the Chinese save less and consume more, buying more imported goods. The United States also wants China to free its banking system from political controls and politically driven loans.

What the Bush administration can offer China in return, many experts say, is a pledge by Bush to block projectionist measures in Congress like the one pushed by Schumer and Graham.

"The Chinese are very unsettled by the results of the election," said Jeffrey Bader, a director of Chinese studies at the Brookings Institution. "They're trying to figure out how much to give to Paulson so Paulson can keep the wolves at bay."