A cautious start, but Sino-US talks may yet provide impetus for reforms

PUBLISHED : Monday, 18 December, 2006, 12:00am
UPDATED : Monday, 18 December, 2006, 12:00am

It is easy to dismiss the results of the so-called 'strategic economic dialogue' between senior officials of the United States and China, which ended on Friday.

US Treasury Secretary Henry Paulson brought along six cabinet-level ministers and Federal Reserve chairman Ben Bernanke for the 11/2 days of talks with a dozen mainland ministers headed by Vice-Premier Wu Yi .

The inaugural round of the biannual talks did not, however, produce much. Mr Paulson called for 'tangible results' but in the end the Chinese did not give much ground. Both sides merely pledged to tackle economic imbalances, with Beijing promising greater currency flexibility and to boost domestic consumption, and Washington to increase its national savings rate.

With US newspaper headlines highlighting 'few signs of progress' and 'little action at talks', US lawmakers are already calling for further action.

Senator Charles Schumer, one of China's harshest critics in Congress, reportedly said he expected Beijing to continue dragging its feet on reforms.

Is this another round of 'loud thunder, little rain'? Hardly. The talks have laid a solid foundation for progress, not only for bilateral trade but also China's reforms and opening up.

Mr Paulson, who made dozens of trips to China during his days as an investment banker, is one of the few senior US officials who truly knows how to deal with the mainland leadership and get results. Like an accomplished chess player, he has opened the game well.

He came with a high-powered delegation to show Beijing that Washington is not only serious about its immediate concerns over the currency issue and the huge trade imbalance, but is also willing to help Beijing tackle its challenges on health, environment, energy and labour issues, as well as easing investment and promoting transparency.

It is true that the Americans did not extract any concessions over their core concerns, most importantly the currency issue. As Mr Paulson said, it is unrealistic to expect the dialogue, which was agreed to only in September, to produce concrete results quickly.

In addition, the Chinese cannot be seen to be kowtowing to US demands, as they have strongly argued that the currency issue is a matter of national sovereignty.

But it is equally wrong to assume that the mainland leadership sees the dialogue as a mere talking shop. The talks may provide the impetus the leadership needs to push ahead with some of the most difficult economic and political reforms at a time when the political will to do so is sapping, and calls for slower reforms are growing amid rising social unrest and rampant official corruption.

Beneath their rhetoric, the Chinese are also seriously concerned about the threat from the Democrat-controlled Congress.

More importantly, the dialogue - which covers subjects from energy to health care - may convince many sceptical mainland officials that Washington is at least showing a willingness to help China integrate into the global economy, instead of the past focus on scaremongering about the threat of China's growth. A case in point is the first major energy summit in Beijing on Saturday, involving ministers from the US, China, India, Japan and South Korea - the nations that consume nearly half the world's oil.

It is no coincidence that, on the sidelines of the summit, US-based Westinghouse won a multibillion-dollar contract to build four nuclear power plants on the mainland.

If this momentum is maintained, it is hard to believe Beijing will not reciprocate quickly, though maybe not be as fast as the US wants.