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US Treasury Secretary: US-China Economic Links Complicated, but Beneficial

U.S. Treasury Secretary Henry Paulson, who will be leading the U.S. delegation to the September 18 International Monetary Fund meeting in Singapore and then going on to China, Wednesday delivered a major speech on the international economy. The Treasury chief says the economic links between the United States and China are complicated but beneficial.

Treasury Secretary Paulson called China's transition from a planned to a market economy one of the most dramatic transformations in global economic history. Making his first major address since coming to Treasury from the Wall Street firm of Goldman Sachs in June, Paulson hailed the close economic ties between China and the United States, saying that the two nations over the past five years have accounted for one half of all growth in the world economy. Making only a passing reference to China's undervalued currency, Paulson spoke generally about China's need to complete the market-based reforms it launched nearly 30 years ago.

"As a global economic leader China should accept its economic responsibilities as a steward of the international system of open trade and investment," he said.

Paulson also said the United States welcomes increased competition from China but that Beijing needs to be aware of growing protectionist sentiment from American lawmakers alarmed at the loss of jobs to China. Paulson, who traveled 70 times to China during his tenure at America's premier investment bank, travels to China next week for talks that are certain to focus on exchange rate issues.

Nicholas Lardy, a China specialist at Washington's Institute for International Economics, is dismayed at Beijing's continuing refusal to permit a revaluation of its currency. Lardy says Paulson will probably not succeed in getting the Chinese to revalue.

"What are the chances that he [Paulson] is actually going to get something? I think the chances that the Chinese would make a significant move [in the currency] around the time of his trip or shortly thereafter are approximately zero. I think domestic politics will make it very difficult," he said.

Fred Bergsten, Lardy's colleague at the economics institute, says members of China's policy-making communist party central committee are short on economic knowledge and do not understand that a revaluation is in China's own interests.

"For whatever reason, maybe just the fact that all the members of the central committee are engineers, no economists in the group, seems to be a bit of a blind spot," he said.

Paulson, in his Treasury Department speech, emphasized that China's economy is 10 times bigger than it was 27 years ago.