Pledge to co-operate
“The current top priority is to… restore market confidence as soon as possible, to curb the financial crisis from spreading and to avoid overall global economic recession”
Laying out the agenda for two days of talks, the two sides pledged to work together to tackle the global financial crisis and strengthen the world economic system.
“Jointly dealing with the international crisis is the most pressing task we are now facing,” Wang said at the start of the talks, held at the Diaoyutai State Guest House in western Beijing.
“The current top priority is to… restore market confidence as soon as possible, to curb the financial crisis from spreading and to avoid overall global economic recession, and especially to limit the impact on developing countries.”
Paulson praised “the responsible role China has played during the turmoil” and added that the biannual talks had “improved the relationship between our two countries so that we can effectively manage complex issues”.
He added that he hoped to reach agreement on co-operation in energy, environmental protection and other areas at the talks.
|The US says China keeps the yuan’s value low to give its exports an unfair advantage [EPA]|
While neither he nor Wang mentioned the issue in their opening remarks, Paulson was expected to call on China to allow a strengthening of it currency, the yuan, amid fears that a plunge in its value could destabilise global markets even further.
In a speech on Tuesday, Paulson said it was important for China to stick to its currency reforms and rely more on domestic demand to drive growth.
“As I have said in the past, continued reform of China’s exchange-rate policies is an integral part of this broader reform process,” he said.
US companies complain that China keeps the yuan or renminbi undervalued, giving its exporters an unfair advantage and adding to its swollen trade surplus, and US politicians have pressed for punitive action if Beijing fails to take faster action on trade complaints.
Ashley Davies, a director of foreign exchange strategy at UBS Investment Bank, told Al Jazeera that it appeared that the Americans had come to Beijing with high and possibly unrealistic expectations.
“They can’t ask for the renminbi to be strong and for the Chinese to purchase treasuries at the same time,” he said.
“These two desires on behalf of the US will increasingly become incompatible with each other because there will be less need for intervention by the Chinese and with it less purchases of treasuries unless the Chinese are allowed to weaken their currency.”
The US is struggling with recession but China has also seen a sharp slowdown in growth in recent months, leading to worries about job losses and the possibility of social unrest.
China’s exporters, suffering as their main markets such as the US and Europe cut back on spending, have lobbied the government to slow or reverse the yuan’s rise against the dollar to make their goods more competitive abroad.
“The name of the game for either administration would be to try and keep the Chinese buying [US] treasuries but unfortunately that’s probably going to mean they’re [the US] going to have to accept a weaker renminbi as part of the deal,” Davies said.
The yuan plunged on Monday in government-controlled trading in its sharpest one-day fall since 2005, wiping almost one per cent of its value against the dollar in what some analysts interpreted as a message to Washington to go easy on the issue.
On Wednesday, Chinese state media made the warning more explicit, with a China Daily headline saying “US urged not to harp on currency issue at talks”.
Beijing broke a direct link between its yuan and the dollar in July 2005 and has let its currency rise by about 20 per cent since then.
China has said its biggest contribution to world stability will be to keep its own economy growing strongly and to that end has launched a $586bn stimulus package aimed at bolstering slowing growth through heavy spending on construction and other projects.