Opinion / China Watch
Paulson tempers expectations for China visit
By DEBORAH SOLOMON (WSJ)
Updated: 2006-12-07 12:54
http://online.wsj.com/public/article/SB116542649239842442-7Og_ObYKazMefR59s
fmWVoQ_MCw_20061213.html?mod=regionallinks
As Treasury Secretary Henry Paulson prepares to lead a delegation to
China, he is seeking to temper the expectations of lawmakers and business
interests eager for action by Beijing.
Mr. Paulson is cautioning that he won't have any big announcement after
the high-level visit next week, saying he views the meeting with Chinese
leaders as the beginning of a "long term" discussion, and that simply
sitting down to discuss economic issues with top Chinese officials should
be seen as progress.
"This is the first session of a strategic dialogue where we're dealing
with long-term issues," Mr. Paulson said in an interview in London last
week. "Meaningful progress to me is being able to have a really
substantive interchange where each side is not reading from a prearranged
script and where there's listening and learning going on."
But Mr. Paulson is likely to come under increasing pressure from members
of Congress and U.S. manufacturers, who want less talk and more action.
They expect the secretary to press Beijing to move quickly with a number
of economic overhauls, including adopting a more flexible currency.
While Mr. Paulson is just beginning to engage the Chinese in his role as
Treasury secretary, the U.S. and China have long participated in
bilateral relations, including two-way or multilateral commissions,
dialogues, partnerships and forums addressing everything from trade
policy to energy to health care.
"We've been having these conversations for quite some time and we'd
better get going here," said John Engler, president of the National
Association of Manufacturers.
The risk for Mr. Paulson is that if he doesn't deliver tangible results,
protectionist urges in Congress could hamper his ability to negotiate
with Beijing and complicate the efforts of U.S. business to compete
globally.
In particular, manufacturing executives worry that unless China loosens
its grip on the yuan and complies with international trade agreements,
U.S. lawmakers will try to impose punitive measures that could limit
access and trade. In the past few months, the Chinese have been allowing
the yuan to rise against the dollar and the currency is now 5.7% stronger
than it was in July 2005, when authorities initially allowed it to move.
But that pace isn't fast enough to satisfy some critics.
Meanwhile, China's trade surplus in November reached $23.37 billion, just
short of October's record, but high enough to continue inflaming concerns
that China is keeping its currency artificially weak to gain an unfair
advantage in global markets. China released the trade-surplus figure
earlier than usual, ahead of Mr. Paulson's visit.
"The clock is ticking," said Sen. Charles Schumer (D., N.Y.), who has
threatened to push Congress for a 27.5% tariff on Chinese goods if
Beijing doesn't revalue its currency. "Paulson has a tremendous amount of
goodwill, but no amount of talking is going to substitute for the Chinese
doing something."
The pressure poses a challenge for the secretary, who is seeking to
establish an economic dialogue between two countries, which historically
have viewed one another with suspicion. While Mr. Paulson has said
publicly that he wants China to move ahead "quickly" with its overhauls,
many of the biggest tension points between the two countries will take
more than a few conversations to resolve, such as opening China's markets
to competition and moving it away from exports to promote more domestic
consumption.
Expectations of Mr. Paulson's trip have been raised even higher by the
makeup of the delegation accompanying him. When he heads to Beijing next
week, he will be joined by Federal Reserve Chairman Ben Bernanke, a host
of cabinet members, including U.S. Trade Representative Susan Schwab,
Commerce Secretary Carlos Guitterez, dozens of aides, staffers and a
phalanx of security. The U.S. delegation will meet with Chinese President
Hu Jintao and Premier Wen Jiabao, in addition to Vice Premier Wu Yi, who
was chosen by Mr. Hu to lead China's side of the talks.
Daniel Tarullo, a former adviser to President Clinton on international
economic policy, said that while the U.S. has long been in discussions
with Beijing about economic issues, the senior-level participation of the
Paulson talks and their timing definitely raise the bar. "Secretary
Paulson has framed expectations that this dialogue will produce positive
results. He's been careful not to promise there will be a change in the
exchange rate, but he cannot help but have expectations out there now,"
said Mr. Tarullo, a law professor at Georgetown University.
But even reaching accord on what will be discussed in next week's
meetings took delicate negotiation. Treasury officials have been working
with their Chinese counterparts to reach consensus on the topics and
format of the talks, which will focus on such issues as China's economic
overhauls, energy policies, health and access to China's markets.
And while Mr. Paulson has had extensive dealings with China as head of
Goldman Sachs and in his environmental work there, policy experts say
what happens in China is largely out of his control, particularly with
regard to the country's currency.
"At the margin, he can contribute to the debate and the discussion in
China, but it's primarily a domestic argument," said Nicholas Lardy of
the Institute for International Economics, a Washington think tank. "The
Chinese are deadlocked. They can't agree on a strategy so they're doing
nothing."
That could further complicate Mr. Paulson's efforts, given that many in
Congress say something needs to happen soon. Many new members elected in
last month's midterm elections that brought Democratic control of the
next Congress campaigned against free trade. And they seized on China in
particular, floating such ideas as restricting imports or imposing
restrictions or punishments for intellectual-property violations.
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