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US Treasury Secretary says China Risks Protectionism by Keeping Controls on Yuan


U.S. Treasury Secretary Henry Paulson is urging China to open its financial sector further. He also says China is fueling protectionist sentiment in the United States by maintaining controls on the Chinese currency.

U.S. Treasury Secretary Henry Paulson says China stands to benefit the most from allowing more foreign investment in its financial sector.

Paulson was speaking Thursday to students at Beijing's Tsinghua University, a day after he and Chinese officials announced a new dialogue on expanding Sino-U.S. economic cooperation.

Paulson said allowing greater outside investment would boost China's economy in general, meaning higher returns for Chinese investors.

"One of the most important, fundamental things this country could do is to develop very strong capital markets," he said. " And the right way to do that is to open up to competition."

It is a message the Treasury secretary has been delivering since he arrived in China this week.

His visit aims to ease tensions across the Pacific over the rising U.S.-China trade imbalance, which reached 202 billion dollars last year in China's favor.

The trade gap has fueled anger among those in the United States who believe Beijing should relax controls on its currency, the yuan. They say that keeping the value of the currency low makes prices of Chinese goods artificially low, which boosts exports to the United States and makes the trade imbalance worse.

Paulson warned that protectionist sentiment is growing around the world, including the United States, where the Bush Administration is under pressure to do something about the U.S trade deficit with China.

"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 U.S. lawmakers are pushing for legislation to place tariffs on Chinese goods unless China moves faster to let the currency rise.