China fears wobbly U.S. economy
China switches the currency debate to the dollar's weakness.
By Washington Post
Published December 13, 2007
XIANGHE, China - On the first day of high-level economic talks, Chinese officials turned the tables on their American counterparts, saying the subprime mortgage crisis that has shaken the U.S. economy and the weakening dollar are as much a problem for the global economy as Chinese exchange rates.
The meetings, which took place outside Beijing, were part of the third session of the strategic economic dialogue, which was set up a year ago by Treasury Secretary Henry Paulson and Chinese Vice Premier Wu Yi.
The twice-yearly talks were imagined to be a forum where the two sides could discuss long-term economic issues. As the session opened, the two sides acknowledged that their trade relationship - with the United States acting as chief customer to China's burgeoning industrial economy - was, as Paulson said, "central to each nation's interest and to maintaining a stable, secure and prosperous global economic system."
But the first two sessions were dominated by discussions about China's currency. U.S. officials have been pushing China to allow its currency to rise in value against the dollar - not only for the sake of fairness to American competitors who are put at a disadvantage, but for what they have argued is the good of the Chinese economy.
The U.S. trade deficit with China is expected to exceed $233-billion this year.
China has said that if it moves too quickly - the yuan has already risen in value by 6 percent this year - there could be dangerous side effects.
"The issue we have different views on is whether taking bigger steps in appreciation of renminbi reform is going to result in more risk of economic instability in China or less risk," Paulson said. "And I've made the case that reform usually comes, is usually sped up when there are economic problems. It's far better to do it in advance."
China's newly appointed commerce minister, Chen Deming, and Zhou Xiaochuan, the governor of the People's Bank of China, China's central bank, both expressed concern about the slide in U.S. currency value and the possible effect on China, which is estimated to holds trillions of reserves in U.S. dollars.
"The dollar getting strong - I think it will serve all parties," Chen said.
U.S. and Chinese officials say they are continuing negotiations on whether China would raise ownership caps on foreign ownership of banks and other financial institutions. A deal was close to being finalized at the round of talks in Washington in May.