China and US set $20bn for trade as talks wrap up

The United States and China pledged $20 billion (Dh74 billion) to help finance trade amid a global credit crisis on Friday as they wrapped up high-level talks marked by a Chinese appeal to Washington to stabilise its economy.

“We are both committed to strengthening the global economy,” Treasury Secretary Henry Paulson, the US envoy to the Strategic Economic Dialogue, told reporters, standing with his Chinese counterpart, Vice Premier Wang Qishan.

US and Chinese government export-import banks will provide the credit to importers in developing countries, Paulson said.

On Thursday, Wang and China’s central bank governor urged Washington to rein in debt-fueled spending, stabilise its economy and protect Beijing’s US investments. The comments reflected increasing Chinese assertiveness and a role reversal after usually being on the receiving end of calls from the US for currency and financial reforms.

“The important reasons for the US financial crisis include excessive consumption and high leverage,” said central bank Gov.Zhou Xiaochuan, according to Jin Qi, an official who briefed reporters. “The United States should speed up domestic adjustment, raise its savings rate and reduce its trade and fiscal deficits.”

US officials pressed Beijing during the talks to let the yuan rise further in value to ease trade tensions. But no breakthroughs on that or other major disputes were announced at the talks, which are meant to address the long-term growth of US-Chinese economic ties.

US officials said China promised more currency reforms. Washington and other trading partners say China’s yuan is kept undervalued, giving its exporters an unfair price advantage and adding to its trade surplus. Some American lawmakers are calling for punitive action against Beijing.

“The Chinese continued to reinforce to us that they were committed to continued reform, and by that I mean continued appreciation (of the yuan) over time,” an American official said on Thursday. He briefed reporters on condition he not be identified further.

Wang did not explain what he meant by protecting Chinese investments. But Beijing owns $585 billion in Treasury debt that has helped to finance US budget deficits and its holdings of other US assets are growing. The weak dollar and financial turmoil have fueled Chinese anxiety about such investments.

Wang also said Beijing wants to see progress in reforms of international financial institutions – a reference to its desire for a bigger role in the International Monetary Fund and other bodies.

The yuan has risen 20 per cent against the dollar since Beijing cut its peg to the dollar in July 2005. But it has fallen this week in government-controlled trading – including a nearly 1 per cent decline Monday, its biggest one-day drop in three years – in what analysts suggested was a message from Beijing to go easy on the issue.

The yuan’s drop on Monday also might have been meant as a warning to President-elect Barack Obama, that talks will be more effective than confrontation, said Frank FX Gong, chief Asia economist for JP Morgan Securities Ltd. Obama has yet to say whether he will continue the dialogue. Some analysts have speculated that Obama and the US Congress will take a harder line on China.

China’s economic growth is expected to slow this year to about 9 per cent, down from last year’s 11.9 per cent. Communist leaders worry about rising job losses and possible unrest.

Beijing is launching a 4 trillion yuan (Dh2.2 trillion) stimulus package meant to revive slowing growth through heavy spending on construction and other projects.

 

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