Paulson says US-China talks will not erase trade tensions
Posted: 31 July 2007 0130 hrs

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BEIJING : US Treasury Secretary Henry Paulson said on Monday that it was "unrealistic" to expect his talks with Chinese leaders would erase trade tensions between the two nations.

Paulson, currently in northwest China to discuss environmental issues, is scheduled to meet with Chinese President Hu Jintao and Vice Premier Wu Yi in Beijing as part of the US-China economic dialogue.

"President Hu is going to do exactly what he believes is in the best interests of China," Paulson told reporters in Xining, capital of Qinghai province where he has been inspecting Chinese environmental projects.

He nevertheless reiterated that the official dialogue was more effective at managing the tension than legislative threats.

Paulson's visit comes amid growing pressure to curb the burgeoning US trade deficit with China and moves in the US Congress to punish Beijing for what some say are unfair trade policies.

The forum covers a range of economic and environmental issues, but the issue at the forefront is the yuan currency, which is seen by lawmakers in the United States as grossly undervalued.

US legislators argue the undervalued yuan makes US-bound exports cheaper, thereby fuelling the trade deficit with China, which hit 232.5 billion dollars last year according to US figures.

Last week, the Senate Finance Committee overwhelmingly approved a bill that requires the Treasury to identify nations with "fundamentally misaligned" currencies, potentially opening the door to economic sanctions against Beijing.

"The rate of appreciation has gone up considerably over the last year and the renminbi (yuan) has now appreciated well over nine percent," Paulson told reporters on the way to China.

China's state-run press said Monday the new US currency bill smacked of protectionism.

"The legislation that smacks of strong protectionism risks undermining ongoing bilateral efforts to reduce trade imbalances between the two countries," the China Daily said.

"Unfortunately, the new US bill tends to mislead its people into believing that protectionism can be an answer to its economic woes." - AFP/de