Paulson, in China, Offers Conciliation

On his first official visit to China, Treasury Secretary Henry M. Paulson Jr. struck a conciliatory tone Wednesday, saying high-level economic dialogue, not quick-fix solutions, was the answer to vexing trade tensions.

Between meetings with top Chinese leaders, the former Goldman Sachs chairman held a news conference to announce that the U.S. and China would begin holding twice-yearly Cabinet-level talks aimed at developing an economic strategy that would help defuse protectionist sentiments in both countries.

Paulson’s trip comes amid growing criticism in Washington about China’s reluctance to open its market wider and further reform its currency. U.S. critics say the yuan is undervalued by as much as 40%, giving China’s exporters an unfair advantage and contributing to the $202-billion trade surplus with the U.S.

The yuan traded as high as 7.9255 against the dollar on Wednesday, its highest level since Beijing unpegged it to the dollar last July. “Regrettably in the U.S., there is a sense that the Chinese don’t play fair when it comes to trade and economics,” said Paulson, in his first of two days of talks in Beijing. “That’s why we created this unprecedented dialogue.”

President Bush proposed the economic dialogue in a telephone call to Chinese President Hu Jintao last month. Paulson said he and Chinese Vice Premier Wu Yi would oversee two meetings a year to try to manage what he described as “the most important economic bilateral relationship in the world today.”

Paulson, a frequent visitor to China in his days as an investment banker, received a warm welcome in Beijing, where leaders have displayed growing frustration over U.S. accusations of economic foul play. Wu described Paulson as “an old friend of China’s” and one of the few foreign officials who understood China well.

Currency isn’t the only area of friction in the bilateral relationship. The U.S. recently joined the European Union and Canada in filing a complaint with the World Trade Organization about Chinese tariffs on imported auto parts. And U.S. firms are unhappy about the recent news that the Chinese government will be vetting foreign investments for possible threats to “national economic security.”

“Constant pressure and criticism in the past didn’t work. They really do need a different approach,” said Mei Renyi, director of the American Studies Center at the Beijing Foreign Studies University.

U.S. business groups welcomed the news that the Bush administration was setting up a process for addressing long-range issues of shared concern, such as reform of China’s banking sector and energy development. “We’re soon going to be the two largest economies in the world, and right now, we’re mostly just talking to each other about problems,” said John Frisbie, president of the U.S.-China Business Council, a trade group in Washington.

But U.S. textile manufacturers, labor leaders and congressional critics said the Bush administration’s latest move was a delaying tactic and would not head off efforts in Congress to push for more forceful action against China.

Sen. Charles E. Schumer (D-N.Y.) said Wednesday that he was not backing off from his efforts to pass legislation that would impose 27.5% tariffs on Chinese imports if that government didn’t reform its currency regime. He has asked that his bill, co-authored by Sen. Lindsay Graham (R-S.C.), be put to a vote next week.

“Everyone knows the Chinese are flouting the rules,” Schumer said in a statement. “We need action.”

Even if the Senate acts on the bill, it isn’t expected to become law because there is no companion bill in the House and Congress is set to adjourn soon for midterm elections.

But Cass Johnson, a supporter of the bill, said its passage would send a message that Congress was fed up with the status quo.

“It’s going to take a stronger hand to force China to the table,” said Johnson, president of the National Council of Textile Organizations, which represents domestic apparel and textile manufacturers.

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chingching.ni@latimes.com, evelyn.iritani@latimes.com

Ni reported from Beijing and Iritani from Los Angeles.