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China urged to open financial sector
(Reuters)
Updated: 2006-09-21 15:07

BEIJING (Reuters) - US Treasury Secretary Henry Paulson on Thursday urged
China to open its financial sector to foreign competition and said a
critical challenge would be to hold back global trade protectionist
forces.

Paulson spoke to students at Tsinghua University in Beijing, using the
forum to reiterate the U.S. call for more open Chinese capital markets
and to warn that the possibility of trade action against China was real.

The U.S. Treasury chief said freeing up financial markets was "absolutely
necessary for long-term economic success" because it would allow more
efficient investment and greater returns for China's rising savings.

Paulson spoke a day after the United States and China announced a plan
for regular high-level talks about their long-term economic relationship
that U.S. officials said would not overshadow immediate concerns
including the yuan exchange rate.

The "strategic economic dialogue" was agreed by President George W. Bush
and Chinese President Hu Jintao last month but only revealed as Paulson
began a three-day visit to Beijing on Wednesday. He is to meet Hu on
Friday before returning to the United States.

But signs were evident already on Thursday that U.S. legislators remain
unhappy at what they perceive to be an undervalued Chinese yuan, or
renminbi, and that Chinese officials intend to proceed at their own pace
toward letting it become more responsive to market forces.

TROUBLE AT HOME

Paulson hinted at the pressure he faces from U.S. lawmakers when he
cautioned about the risk of trade barriers.

"I think one of the biggest challenges will be to make the case in the
United States and around the world for the benefits of trade, openness,
because virtually everywhere in the world we have protectionist
sentiment," he said.

Some of that was unavoidable as China's booming economy and America's
huge consumer markets tie the two countries more closely, he said, but
added that each side must also take into account the positive impacts of
stronger ties.

"Global trade benefits all the countries that participate, and those that
don't open themselves up to reform and change don't benefit and they get
left behind," he said.

One sponsor of a U.S. Senate bill, which proposes tariffs against Chinese
imports unless the yuan is swiftly revalued, indicated he was not yet
satisfied with China's actions.

"We have had four years of talk," said Democratic Sen. Charles Schumer
(news, bio, voting record) of New York. "Everyone knows the Chinese are
flouting the rules. We need action."

Paulson's call for China to open its financial markets comes as foreign
banks are rushing into China, in part to tap the roughly $2 trillion in
personal savings in the world's fourth-largest economy.

Paulson said he sought "a long-term strategic view" of U.S. and Chinese
relations that went beyond short-term irritants.

But senators Schumer and Lindsey Graham, a South Carolina Republican, are
threatening to put their tariff proposal up for a vote by September 29
before Congress adjourns for November congressional elections.

Democrats seeking to wrest control of the U.S. House of Representatives
and Senate from Republicans are expected to campaign hard on the issue of
job losses and modest income gains for American workers, blaming the
problems on unfairly cheap Chinese-made goods.

Paulson said the issue of lost U.S. manufacturing jobs needed to be
balanced against the benefits of cheaper goods for U.S. consumers.

"There's more weight being given to the production side, to the jobs, and
there's less credit to the benefit you guys (China) give, which is the
ability to buy products for a lower cost."

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