Paulson: China must let yuan rise

Talks resuming on trade, other issues

Treasury Secretary Henry Paulson urged China to boost consumption, not rely on exports to strengthen its economy. Treasury Secretary Henry Paulson urged China to boost consumption, not rely on exports to strengthen its economy. (Brendan Smialowski/Bloomberg News)
Associated Press / December 3, 2008
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WASHINGTON - Treasury Secretary Henry Paulson, preparing for his final round of economic talks with China, yesterday said that Beijing must keep letting its currency rise in value against the dollar to help ease trade tensions with the United States.

American manufacturers contend China's undervalued currency, the yuan, gives Chinese companies an unfair edge. A cheaper yuan makes Chinese goods less expensive for American consumers and US products more expensive in China.

Paulson also said he was not concerned that China, now the largest foreign holder of US government bonds, will start selling that debt to try to lower its level of dollar-denominated investments.

Paulson said the Chinese have been "very responsible partners and stakeholders and have continued to stand by us and stand by our debt." China owns nearly $1 of every $10 in US public debt.

Paulson's remarks came before his departure for the fifth round of high-level talks known as the Strategic Economic Dialogue, to take place tomorrow and Friday in Beijing. The discussions will cover a range of issues.

Paulson praised the Chinese for allowing their currency to rise in value by more than 20 percent against the dollar since July 2005. But he said it was critical that currency reforms continue. The US trade deficit with China widened in October to $27.8 billion - the largest monthly trade gap ever recorded with a single country.

Frank Vargo, a vice president of the National Association of Manufacturers, said his US group is upset that the movement toward a stronger yuan relative to the dollar has stalled as the Chinese respond to pressure from their own manufacturers. Chinese manufacturers are facing declining export sales in the midst of the global slowdown.

"We are quite distressed about the movement of the yuan. It has been flat for a number of months, and now it is going the wrong way," Vargo said.

Chinese officials insist they are moving as fast as their economy allows.

In trading yesterday, the yuan fell to its lowest against the US dollar in more than five months. That raised fears the Chinese may let the currency weaken against the dollar. The drop followed a record one-day decline against the dollar on Monday.

Paulson did not specifically mention recent movements in the yuan. But he said it was important China not falter in its push to reform its currency, and to rely more on domestic demand than on exports to support Chinese economic growth.

Paulson said another major topic for this week's talks will be energy use and the environment.

Talks with China have been one of Paulson's key initiatives.

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