Views on US-China Talks

♠ Posted by Emmanuel in , at 5/25/2007 04:03:00 AM
(NOTE: Twice updated!) This post should be my last one on the Strategic Economic Dialogue until the next one comes around, although that event may not be a sure thing. As I suggested earlier, the US Congress expressed its dissatisfaction in a way that US Treasury Secretary Paulson did not to Vice-Premier Wu Yi and her entourage over currency manipulation. Here is the letter presented by the House Ways and Means Committee to her on the matter:

May 23, 2007
Her Excellency Wu Yi Vice Premier of The People`s Republic of China

Dear Madam Wu,

We welcome you and your delegation to the Capitol and appreciate your interest in discussing the important relationship between our nations.

We share your interest in engaging in a frank discussion of the issues that stand in the way of a closer relationship between our nations. Our constituents have raised serious concerns regarding China’s policies in a number of areas, ranging from human rights issues such as the crisis in Darfur, to issues of environmental degradation and global warming. Our nations must take every opportunity we have to work to resolve these critical issues, and we look forward to discussing these issues with you today and in the future. As Members of the Committee on Ways and Means, however, we will focus today on the concerns the Committee has on the trading relationship between our countries.

This Committee recognizes the importance and the current and potential benefits of the bilateral trade and economic relationship between our countries and of the rule-based trading system under the World Trade Organization. In our view, however, China has not honored some of the commitments it made when it acceded to the WTO.

The Committee has serious concerns about China’s massive and constant interventions in the currency markets. Those interventions keep the value of the Chinese currency, the renminbi (RMB), artificially low – making exports from China relatively cheap and imports into China relatively expensive. While the International Monetary Fund and the U.S. Department of Treasury have urged China to address this issue for several years now, we have seen almost no meaningful progress to date. To the contrary, the Federal Reserve Chairman noted in December 2006 that the situation has likely worsened recently.

More generally, the Committee is increasingly concerned about trade-distorting subsidies in China. When it acceded to the WTO, China agreed to immediately eliminate its export subsidy programs. Unfortunately, China has failed to do so. A number of subsidies that are strictly prohibited under WTO rules persist – subsidies designed to distort trade by increasing exports or limiting imports into China. China also maintains a number of other subsidies that distort trade and harm U.S. businesses, workers, and farmers. Those subsidies need to be eliminated without further delay.

We also are particularly frustrated with China’s inability to enforce intellectual property rights in China. As you know, the piracy rates in China remain virtually the highest in the world, at 85 to 95 percent of [software?] sales. Not only has China failed to make meaningful progress in this area, China has been sharply critical of the decision by the United States to file a WTO case to address the issue, claiming that the case “will adversely affect bilateral economic and trade ties.”

Unfortunately, the list of trade issues between our nations appears to be growing. Americans are increasingly concerned that food and feed products from China fall short of international safety standards and could pose a health risk. Moreover, we regularly hear from constituents who believe that China has not provided the access to its market that it agreed to provide when it acceded to the WTO.

We hope China will take immediate steps to address these issues and that our exchange of views today will be the beginning of an ongoing dialogue, a dialogue that will contribute to a mutually advantageous economic and trade relationship between our nations.

Sincerely,

Chairman Charles Rangel (D-NY)
Ranking Member Jim McCrery (R-LA)

In contrast, the Chinese state media applied a positive spin to the Dialogue:

China and the United States yesterday signed a slew of agreements at the conclusion of two days of high-level economic talks, which Vice-Premier Wu Yi described as "a complete success".

"We have reached broad consensus and realized positive results," Wu, who led the Chinese delegation to the China-US Strategic Economic Dialogue (SED), told reporters.

The two countries agreed on a wide variety of next steps to be taken in such areas as financial services, energy and the environment, trade balance, civil aviation and innovation.

As part of the opening up of the financial sector, the quota for qualified foreign institutional investors will be tripled from $10 billion to $30 billion.

On the aviation front, daily passenger flights between the United States and China will more than double by 2012; and air cargo companies will have virtually unlimited access to China. "Piece by piece, we are making it easier, cheaper, and more convenient to fly people and ship goods between our two countries," US Transportation Secretary Mary E. Peters said.

Under the pact, US carriers will be able to operate 23 daily round trip flights by 2012, up from 10 now...

[US Treasury Secretary Paulson said] "We agree that by combining the power of our economies, we can spur further development of clean energy technology."

According to a briefing by the US Environment Protection Agency on Tuesday, the two sides discussed four areas for environmental collaboration, including developing up to 15 large-scale coal-mine methane capture and utilization projects in China over the next five years and pushing ahead with the development of a low sulfur fuel policy for China.

As you probably have gathered, the Chinese version of this "complete success" made no mention of yuan revaluation. After Congress gets to work on a bipartisan, veto-proof, WTO-compliant bill against China on the matter of yuan undervaluation, I doubt whether Vice-Premier Wu will feel the same way. It's pretty much in the cards. Here is Senator Max Baucus (D-Montana):
A senior U.S. senator said on Thursday he still planned to introduce legislation aimed at prodding China to revalue its currency after what he said were "very good" talks this week with senior Chinese officials.

"They were quite forthcoming, actually," Senate Finance Committee Chairman Max Baucus, a Montana Democrat, told reporters after meeting with a Chinese delegation led by Vice Premier Wu Yi. "They gave their usual statements on currency ... but you could tell from the tone of their voice that they certainly recognize the concern in America."

Baucus said he would continue to work with other senators on a China trade bill, but added lawmakers were still sorting through their options. "Whatever our bill is -- we don't know yet -- it will certainly be WTO consistent," he said.

Baucus also praised U.S. Treasury Secretary Henry Paulson's efforts to move China to revalue its currency.

"I think he's doing a good job. I think he's doing about as well as almost anyone could do," Baucus said.

You can be pretty sure that this statement of Wu's did not go down well with China-bashers Stateside. In Baucus's words, they were "their usual statements on currency":

The floating band of the renminbi exchange rate will continue to expand as the market changes in the future, Wu Yi said.

"China's exchange rate reform will be advanced in an orderly way, based on the principles of self-initiative, controllability and gradualism," Wu told a group of US business leaders in Washington on Thursday.

"The flexibility of the yuan's exchange rate will be continuously increased through the reform, while being maintained at a basically stable, reasonable level," she said.

She added that a large appreciation could be harmful to China's economy and that exchange rates were not the main cause of the huge US trade deficit with China.

Worse yet, it seems that there were some gaffes in her reception by Congress according to the Washington Wire:

A series of minor missteps marred a visit by top Chinese leaders to Capitol Hill Wednesday as the U.S. Congress, unlike the Bush administration, paid little special heed to a huge delegation of senior Chinese economic officials.

Shortly after the start of a meeting with Chinese Vice Premier Wu Yi and her team of ministers that was meant to defuse tension over China’s currency policies, the entire cast of House members walked out of the meeting to vote on legislation related to U.S. military veteran health-care issues. That walkout left the Chinese side yawning and without interlocutors for about 15 minutes.

Then, as the meeting dragged on late, U.S. and Chinese security officials got into a row over whether China’s minister had to pass through metal detectors when entering the U.S. Senate for meetings scheduled for Thursday. U.S. Capitol security officials insisted Vice Premier Wu was the only official that could enter without being scanned, and the Chinese side requested the U.S. reciprocate their treatment toward U.S. officials during the first Strategic Economic Dialogue by allowing the entire team to pass.

Although less extreme, the spats echoed the gaffe-plagued April 2006 visit by Chinese President Hu Jintao to Washington. During that visit a Falun Gong protester interrupted an event on the White House South Lawn, and a White House announcement introduced China’s national anthem as that of the “Republic of China,” the official name of the island of Taiwan. China, formally called the People’s Republic of China, considers Taiwan a renegade province.