A three-way struggle between Paulson and the US administration, Congress and China

Updated On: Aug 03, 2007

Even at the best of times, US-China relations have always had an undercurrent of testiness, fraught with endless quibbles over trade, economy, human rights, product safety standards and the environment.

The latest visit by the US Treasury Secretary Henry Paulson to Beijing was no different.

Caught between a rock and a hard place, Paulson is “trying to avert drastic action by congressional critics who are pressing for sanctions over Beijing’s currency controls” which critics say undervalues the yuan, “giving exporters an unfair advantage and adding to its multibillion-dollar trade surplus”.

However, as one “who knows China well”, Paulson seemed determined to highlight China’s successes and be seen to be respectful of its interests, while never detracting from his primary mission to firmly push for American policy in his “strategic economic dialogue” with Beijing. For one, Paulson opposed the bill which Senate passed on this week, one which would “require the [US] administration to pursue currency manipulation cases before the International Monetary Fund”. Paulson commented, “I will not say anything other than the Treasury's view that legislation is not the proper way to proceed and deal with the currency issue. I believe it is much more productive to have bilateral talks and engagement.”

As he wrapped up his two-day meeting, Paulson said, “I heard from everyone, right up to the top, they are committed to currency flexibility, to currency reform.” However, as Beijinghas not offered any specific measures, it is uncertain how Paulson can appease a Congress which feels that Chinacan afford to take bigger reforms given its accelerated growth and plead for more time for diplomacy to work rather than resorting to sanctions.

The matter could go out of hand if not handled carefully. As it is, the Chinese themselves may be getting annoyed. Paulson admitted, “They're too polite to say they're frustrated, but I do believe they are asking themselves, will they ever able to satisfy us.” Already in his meeting with Vice-Premier Wu Yi, Paulson was told, “Chinastill has 23 million people living in poverty. China's very goal in its development is so that its 1.3 billion people can eat their fill, dress warmly and live well. Who could we threaten? We don't have the ability. Chinadoes not and will never threaten anyone.”

Apart from economic issues, Paulson also visited Qinghai Lake, lauding China’s resolution to stop environment degradation due to its industrialization efforts. Paulson said, “Climate change is a very important issue in this country. By coming here I call attention to what China is doing environmentally and reinforce what they're doing.”

Commentators have highlighted that the environment is a key area which can strengthen Sino-US ties without much tension. A Xinhua editorial commented that China is resolved to “face up squarely to the stark reality of the deteriorating environment” and would therefore be likely to “cooperate earnestly with advanced nations, including the US”. On its part, the US “needs to do away with technological barriers and reduce ideological prejudices in its dealings with China”.

On another issue, International Monetary Fund managing director Rodrigo Rato revealed that “China and India are becoming the new engines of world economic growth by replacing United States and other developed countries”. For the first time, the largest contribution to global growth will now be made by China instead of the United States. However, there is still much room for improvement as the recently released Asian Development Bank (ADB) report showed that China and India “are lagging in terms of economic well-being and living standards of their population”.

As to polishing up China’s image for the Olympic Games next year, the government’s efforts are fast falling short. What the world expects, and Beijing has promised, is the unfettered freedom for journalists to report on issues beyond the Olympics, including politics, technology, culture and the economy. However, the Foreign Correspondents’ Club of China survey showed that 95% of the respondents felt that Chinese reporting permissions were below par. Human Rights Watch has also added its criticism, saying, “The government seems afraid that its own citizens will embarrass it by speaking out about political and social problems, but China's leaders apparently don't realize authoritarian crackdowns are even more embarrassing.”  (2 Aug 2007)


Looking to environment for answers to key issues (Xinhua, 2 August 2007)

Paulson says Chinese leaders committed to flexible currency (AP, 1 August 2007)

Paulson says SED succeeds in defusing China-U.S. disputes (Xinhua, 1 August 2007)

Treasury Sec Paulson opposes US currency bill, ahead of meeting with China's Hu (Forbes, 1 August 2007)

UPDATE 1-Paulson says subprime woes contained, pushes on yuan (Reuters, 1 August 2007)

ChinaIndia becoming leaders in world economic growth (Daily Times, 1 August 2007)

Foreign Journalists in China Voice Concerns on Reporting Conditions (Wall Street Journal, 1 August 2007)

Rights group: China clamping down on activists, journalists 1 year before Olympics (AP, 1 August 2007)

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