US-China talks shift to Congress

US-China talks shift to Congress
By Krishna Guha and Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: May 24 2007 21:17 | Last updated: May 25 2007 01:44


The focal point of US-China economic relations moved from Hank Paulson’s US Treasury to Capitol Hill on Thursday as Chinese officials met senior members of Congress for a second day of talks.

Max Baucus, chairman of the Senate finance committee, said the meetings would mark an enduring shift as the lead role in the bilateral economic relationship passed from the White House to Congress.

“Administrations come and go. It is Congress that remains in the driver’s seat on the key trade and economic issues affecting our two countries,” he said.

Mr Baucus said after meeting Wu Yi, the Chinese vice-premier, that the “dialogue left key issues unresolved”.

“I emphasised to [Ms Wu Yi] that putting our long-term relationship on a sustainable footing requires addressing key short-term concerns [including its] “under-valued currency”.

Other members of Congress expressed concern at the limited results from the talks. Charles Rangel, chairman of the House ways and means committee, said he expected Congress would move to consider legislation.

“They are going to drop lots of bills,” a former administration official who characterised the outcome of the talks as “weak tea” told the Financial Times. He said there was a “real risk” of serious legislation emerging.

In an interview with the FT, Mr Paulson said he had encouraged the delegation to meet members of Congress on the basis that there “will almost certainly be some China trade legislation” and it was important for both sides to hear each other’s views. The Treasury secretary made clear he had no intention of surrendering the role of principal interlocutor between the US and China.

He said his economic dialogue with Beijing, which this week yielded an aviation deal and some concessions in financial services, would “see more progress over time”.

US officials stress the dialogue is a process and that modest gains this week are part of an effort to speed up China’s reform agenda. The Treasury believes Mr Paulson’s message on the importance of financial sector reform is sinking in and will yield more changes.

But it appears the strategic dialogue may no longer be able to serve the political purpose of dissuading members of Congress from legislating on China. Asked whether Beijing had given him enough to persuade Congress not to legislate, he said: “That is the question everybody is asking. ... There is a strong feeling from the American public that they should do more.”

China was the fastest growing economy in the world. “A good many people see that as a threat. I want to see it as an opportunity.

“But it is easier for me to effectively fight to keep our markets open if members of Congress see China moving to open its markets to greater competition.”

Mr Paulson said the dialogue had allowed the US to obtain results “we would never achieve without it”.

But he did not hide his disappointment that China had refused to make changes to the foreign ownership rules in its financial services sector. “We have pressed hard on capital markets,” he said. “I said I do not understand why there are ownership caps.”

US officials privately blame domestic Chinese interest groups for blocking more extensive change.

China’s refusal to commit to a far-reaching liberalisation of its financial services sector has political as well as economic consequences.

US officials know China will never make advance commitments on its currency, no matter how great the pressure from Congress. To do so would be to invite a tidal wave of speculative capital inflows.

Mr Paulson highlighted the importance of financial sector reform as an equally, or even more important, mechanism than currency action through which to rebalance China’s economy and reduce its trade surplus.