Main aim of talks to prevent further slide in trade relations

PUBLISHED : Tuesday, 22 May, 2007, 12:00am
UPDATED : Tuesday, 22 May, 2007, 12:00am

Meeting seeks to avert a sharp deterioration in trade ties

With no breakthroughs expected on the contentious currency issue at this week's Sino-US economic summit, the focus will be on whether agreements stemming from the dialogue will be able to avert a sharp deterioration in trade relations between Beijing and Washington.

'The talks are unlikely to produce very much ... It could be the beginning of new sanctions against China from Congress and the worsening of US-China economic relations,' American Enterprise Institute international trade expert Claude Barfield said.

The talks, which begin in Washington today, will feature two days of high-level discussions headed by US Treasury Secretary Henry Paulson and Vice-Premier Wu Yi .

Ms Wu left Beijing yesterday at the head of a delegation of more than 15 senior officials. The Chinese officials will also meet President George W. Bush and members of Congress.

US officials have said the talks are expected to lead to accords on new commercial air routes, US exports of energy and environmental technology and greater access to the Chinese financial industry for US securities firms and banks. Deals for US$4.3 billion of hi-tech American products are also expected to be signed.

However, the agreements are unlikely to placate the members of Congress who accuse Beijing of artificially manipulating the value of the yuan and say that trade with China is costing American jobs.

According to US government statistics, the US trade deficit with the mainland hit a record US$232.5 billion last year.

Forty-two members of Congress filed a petition with the Bush administration last week calling for the US trade representative to take 'strong action' to end China's currency controls. Two members of the Senate Banking Committee have urged the US Treasury Department to cite China for currency manipulation in its next foreign exchange report to Congress.

In an apparent move to appease critics, the People's Bank of China increased the yuan's daily trading range on Friday to 0.5 per cent compared with the previous 0.3 per cent.

Analysts said that with no major changes expected in terms of the valuation of the yuan, the remaining key issue would be whether the dialogue could prevent a steep decline in Sino-US trade relations.

Mr Barfield said Congress was likely to pass at least one of more than two dozen anti-China bills. However, it was uncertain if there would be enough votes to override a presidential veto.

Another concern is the future of the dialogue, which was established by President Hu Jintao and Mr Bush last year.

'If it is viewed that the Strategic Economic Dialogue does not produce any tangible results, many people will begin to say that there is no point in talking to the Chinese,' said Bruce Stokes, a trade expert at the Washington-based German Marshall Fund think-tank.

Mr Stokes predicted that this week's talks could at best 'raise the bar' for the next session to produce more concrete results. But failure to make any progress could see a complete marginalisation of the dialogue, with top officials no longer keen to attend.

Observers also noted that Mr Paulson's reputation was on the line. Highly regarded by both Beijing and Washington during his time as chairman of the investment bank Goldman Sachs, the Treasury secretary has been able to persuade many congressional critics to let him negotiate with Beijing through dialogue.

But analysts say his credibility in dealing with the mainland will be damaged if he is unable to extract any concessions.

'Paulson may have trouble holding everything together,' Mr Stokes said.