United States Treasury Secretary Henry Paulson (left) gestures as he speaks with China's President Hu Jintao during a meeting in the Great Hall of the People in Beijing yesterday. - Reuters
XIANGHE, China (Reuters):
United States Treasury Secretary Henry Paulson came away from two days of talks yesterday convinced China sees the need for a stronger yuan and with a promise that Beijing will open its financial markets a little wider.
The grand-sounding "strategic economic dialogue" produced only modest immediate gains, but Paulson said it provided a foundation on which to expand cooperation between two nations whose ties he deems vital to global economic prosperity.
The exchange rate was a major focus of the meetings because, as Paulson put it, the pace of the yuan's rise had effectively become a proxy for China's willingness to permit market forces to play a greater role in its economic development.
No specific commitments
Paulson sought no specific commitments from Beijing on the yuan, but he said Chinese policy makers now knew that a stronger exchange rate would help them to fight inflation.
"The Chinese recognise growing inflationary pressures in their economy and that a more flexible currency expands their ability to use monetary policy to stabilise their economy," Paulson said at a closing news conference.
China's central bank, which keeps the currency on a tight leash, let the yuan rise yesterday to its highest level since it was revalued and depegged from the dollar in July 2005. The bank is battling inflation of 6.9 per cent, an 11-year high.
The yuan has climbed about six per cent against the dollar in the past year, but some U.S. lawmakers say it remains grossly undervalued and are preparing legislation to force China's hand.
Paulson declined to say how much more quickly Beijing needed to let the currency climb. "The pace of appreciation has increased over the past year," he said. "I've talked to the Chinese enough that we've agreed we don't talk about how fast is fast. We agree with the principle (of appreciation)."
