US, China Agree on Energy Cooperation, Start of Work on Investment Treaty

Cabinet-level officials from Washington and Beijing Wednesday concluded two days of talks in Annapolis, Maryland with a commitment to cooperate on energy and environmental issues and begin work on a bi-lateral investment treaty. VOA's Barry Wood reports there was also discussion about financial markets and currency values.

Treasury Secretary Henry Paulson hailed the achievements of the talks, the fourth round in a strategic economic dialogue launched two years ago. He said the 10-year energy and environmental agreement is particularly significant as the US and China are the world's biggest oil consumers and biggest emitters of green house gases. The investment treaty-which will take some time to negotiate-would enhance each nation's access to the other's market. The two countries already have a huge and growing trade relationship. The Chinese delegation was headed by Vice Premier Wang Qishan.

Treasury Secretary Paulson praised the Chinese for allowing their currency to appreciate 20 percent against the dollar over the past three years. That appreciation, he said, should continue as it will bring benefits to Chinese policy makers.

"They're going to be able to manage their economy much more effectively if they have a market-driven currency," said Henry Paulson. "It's going to be better in fighting inflation, you know, monetary policy will be more effective."

Paulson said the Chinese remain committed to having a market-based exchange rate and that bi-lateral differences concern only the pace of appreciation.

For their part, the Chinese called attention to the weakness of the dollar and called for action to bolster the dollar against other leading currencies. Paulson said the ongoing credit crisis that erupted last August with bad loans in the US housing sector tarnished the US reputation as a leader in financial services. The Chinese, said Paulson, had regarded the US as a teacher in global financial matters.

"Now they see that the teachers aren't perfect," he said. "So, we had a lot of discussion. They want to learn from our mistakes."

US and European financial institutions made risky housing-related loans that have gone bad, causing hundreds of billions of dollars of losses.

Private sector economists are supportive of the U.S.- China economic dialogue, which they believe will deepen the bi-lateral relationship and possibly prevent misunderstandings and conflict. The dialogue was launched, in large part, to deter the US Congress from enacting restrictive trade measures against the Chinese, who are perceived as having an unfair advantage in competing against higher-cost US companies.