Paulson, Bernanke in Beijing for Economic Talks

U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, along with other cabinet-level officers, are in Beijing for talks with senior Chinese officials on trade and economic concerns, including the huge U.S. trade deficit with China.

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RENEE MONTAGNE, host:

In today's business report, high-level trade talks with China.

In Beijing, two days of trade talks between the U.S. and China opened today. Five Bush administration cabinet members are there for the discussions. As NPR's Anthony Kuhn reports, the unprecedented high-level of the talks reflects the increasing interconnection between the U.S. and Chinese economies.

ANTHONY KUHN: Sending the secretaries of the treasury, commerce, labor, health, and energy, plus the U.S. Trade representative and the chairman of the Federal Reserve to China all at once is unprecedented.

And analysts say it creates expectations for results. One result the U.S. wants is to shrink its annual trade deficit with China, which is estimated this year to be more than $200 billion. That means selling more American goods and services to China. So, before the official meetings began, Commerce Secretary Carlos Gutierrez unveiled the latest companies to sign business deals with China.

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KUHN: China's Vice Minister of Commerce Yi Xiaozhun noted that U.S.-China trade had grown 80 folds since 1979, and that U.S. exports to China were up 23 percent in the first 11 months of this year. At the start of today's meetings, Treasury Secretary Henry Paulson told Vice Premier Wu Yi that the U.S. wanted China to be more flexible in setting the value of its currency, the Yuan or Renminbi.

He added that there was some skepticism at home about the delegation's prospects for success. Robert Kapp agrees. He's a consultant and former president of the U.S.-China Business Council.

Mr. ROBERT KAPP (Consultant): The Congress will always beat up on the executive branch for conducting China policy badly.

KUHN: But Kapp says the two countries have more high-level contacts and cooperation then a decade ago, taking some of the steam out of congressional China-bashing.

Mr. KAPP: Well, there will be congressional pushback against a free-wheeling executive branch conduct of foreign policy in general and relations with China in particular. It won't take the form of this kind of hyper-flamboyant, emotionally impacted theater that we saw in the 1990s.

KUHN: Still, the signs of trade friction are hard to miss. On Monday, U.S. trade representative Susan Schwab said the U.S. could file complaints with the World Trade Organization over China's violations of intellectual property rights.

But economists say that China faces serious problems that keep it from reforming its economy too quickly. Economist Michael Pettis is a visiting scholar at Beijing University. He spoke at a caf´┐Ż near the school.

Mr. MICHAEL PETTIS (Economist): The last thing that they really need is to let the Renminbi appreciated, which have really hurt the farmers and cause more people to pour into the cities. So, China is caught in a series of traps. So it is very, very difficult for it to know what to do next. And I think Paulson, and a number of people, recognize that.

KUHN: Economists also say that America's fiscal imbalances and the decline of its manufacturing sector can't be blamed on China. They also say that much of China's trade surplus is actually due to American firms using cheap Chinese labor to assemble their products. But such details usually get left out of politic rhetoric.

The meetings will last through tomorrow and will include discussions about energy and the environment. These, analysts say, are the long-term strategic issues that will affect the whole world and urgently need attention.

Anthony Kuhn, NPR News, Beijing.

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