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China displeased before talks

Sun., May 20, 2007

SHANGHAI, China – On the eve of high-level economic talks in Washington this week, Chinese leaders are increasingly bitter about what they see as bullying behavior by the United States on trade issues, potentially complicating efforts to strike deals on a slew of thorny issues.

In the span of three months this year, under the pressure of domestic politics, Washington moved aggressively against China for trade violations, filing two lawsuits and imposing steep tariffs on imports. The actions have so incensed China that Vice Premier Wu Yi, leader of its delegation to this week’s talks, apparently considered boycotting them.

On the surface, the Chinese are likely to play the role of grateful guests. Friday, in a slight concession to American arguments, they loosened controls on the value of their currency, the yuan. They’re expected to bring with them $4.3 billion in high-technology contracts for American companies.

But U.S. Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and the heads of nine Cabinet-level agencies are sure to encounter a more combative China when they sit down at the table this time. The Chinese are so mad there was talk for a while that Wu “may not go to America” in order to show “dissatisfaction and anger,” said Xu Mingqi, an international economics professor at the Shanghai Academy of Social Sciences, a government-affiliated think tank.

In the end, however, Wu relented, and on Tuesday and Wednesday she will lead a delegation that includes 14 ministers from Beijing.

This will be the second session of the high-level “strategic economic dialogue” Paulson and the Chinese launched with fanfare last year. The dialogue was supposed to be a feel-good forum where leaders could discuss big issues in the countries’ economic relations, moving beyond an intractable debate about the value of China’s currency.

But in recent months, with anti-trade sentiment rising in the United States and Congress threatening China with sanctions, the talks have taken on a new role, as perhaps the best forum for averting a trade war.

For years, the United States has opposed China’s strict controls on the yuan, which has been allowed to rise 7 percent since July 2005 but which the United States says is still kept artificially low to give Chinese exports an advantage in the world market. U.S. officials have blamed the exchange rate for some of the ballooning trade deficit with China, which was $233 billion last year.

On Friday, China – in a move it said will help control runaway economic growth – widened the band within which the currency can float, permitting a move of as much as 0.5 percent a day, versus 0.3 percent previously. At a news briefing, Alan Holmer, the U.S. Treasury Department’s special envoy for China, said this was a “useful step” but that, in general, reforms were “not fast enough as far as the U.S. administration is concerned.”


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