China pledged to open more of its markets to U.S. companies through after a two-day gathering of top officials that underscored the gap between the two nations over how fast the Chinese currency should rise.
Treasury Secretary Timothy F. Geithner continued his push for a stronger yuan, which lawmakers say would boost American competitiveness and job growth. Chinese officials agreed on the upward direction of the currency, while splitting on the pace. “We have differences on the degree of appreciation,” Deputy Finance Minister Zhu Guangyao said yesterday in Washington.
With distance on the yuan remaining at this year’s Strategic and Economic Dialogue, the world’s two biggest economies instead settled on incremental steps to improve business ties. China pledged to strengthen intellectual property rights and phase out domestic purchasing preferences by the government, while offering foreign financial firms a larger role.
“The two countries are becoming increasingly evenly matched in terms of economic clout and have little direct leverage over each other’s policies,” said Eswar Prasad, a senior fellow at the Washington-based Brookings Institution. “The quid-pro-quo approach may be the only productive avenue.”
U.S. officials pledged increased opportunities for Chinese firms, with Geithner saying at a news conference after the meeting that “you’re going to see Chinese investment in the United States continue to expand very, very rapidly,” a step that will be “good for the United States, good for China.”
The Treasury chief, who co-led the talks with Secretary of State Hillary Clinton, also played up a stronger yuan as a benefit to China in helping contain inflation. Premier Wen Jiabao’s government has let the currency advance about 5 percent in the past year versus the dollar, about half the pace of Singapore’s dollar.
The yuan yesterday gained 0.03 percent to 6.4919 per dollar, according to the China Foreign Exchange Trade System. The currency touched 6.4892 on April 29, the strongest level since 1993.
Chinese Vice Premier Wang Qishan, State Councilor Dai Bingguo and other officials were pressed by their U.S. counterparts on widening opportunities for American businesses. Meantime, Clinton reiterated “vigorous” concern over human rights, including reported arrests of artists and journalists.
Geithner said China agreed to end procurement preferences for “indigenous innovation products” at any level of government.
Opening for Banks
China said it will allow U.S. and other foreign banks incorporated in its country to sell mutual funds and act as custodians for the funds, according to a Treasury Department statement.
Engage China, a group of U.S. financial trade associations whose member companies include Citigroup Inc., JPMorgan Chase & Co. and Bank of America Co., said this week’s steps will need to be followed with further action before “truly meaningful” progress can be achieved.
“Reform and modernization of China’s financial system — including greater foreign participation — must remain a key area of focus if genuine progress is to be made on reducing the trade imbalance and achieving a more market-determined yuan,” the group said in a statement.
The Treasury Department said foreign insurers, including those from the U.S., will be able to sell car insurance in China, the world’s largest automobile market, under an agreement reached this week.
China promised to gradually increase the amount foreign banks can invest in its stock and bond markets, under a program called Qualified Foreign Institutional Investors. The quota for that program has risen 25 percent in the past year to $21 billion, according to the U.S. Treasury.
China also pledged to strengthen its government inspection mechanism to make sure that agencies are using legitimate software. The U.S. wants China to curtail the use of pirated software by the government and by state-owned enterprises, which hurts sales by companies such as Redmond, Washington-based Microsoft Corp.
The micro nature of the agreements shows the limits of the talks, said Derek Scissors, a research fellow at the Heritage Foundation in Washington. The two nations haven’t tackled the broader issues of how the U.S. will reduce its budget deficit and China will wean its economy off of dependence on exports.
“The S&ED delivered some results on particular market- access problems,” Scissors said. “On fundamental bilateral issues, I’m not sure the S&ED is making any progress.”
China this week reported an $11.4 billion trade surplus for April that was more than three times larger than forecast. Exports climbed 30 percent to a record $156 billion, while import growth slowed to 22 percent, the customs bureau said.
The rebound in China’s surplus to its highest this year may add pressure on the world’s biggest exporter and holder of currency reserves to address imbalances and reduce inflation through steeper yuan gains. The Group of 20 nations, which includes the U.S. and China, has called on its members to rein in trade and budget imbalances to strengthen the world economy.
China said it faces challenges from rising consumer prices and will maintain a “prudent” monetary policy, according to a statement released after the talks.
“China will guide its monetary policy to return to normality from an anti-crisis status,” according to the Chinese statement. It will “try to meet reasonable demand for capital needed for economic growth, while focusing on removing inflationary monetary elements,” the statement said.
Geithner on Yuan
Geithner said yesterday he hopes China “moves to allow the exchange rate to appreciate more rapidly and more broadly against the currencies of all its trading partners.”
Wang said that the U.S. had promised it would give fair treatment to China regarding reform of export-control mechanisms and relax some of the limits on technology exports. China also said the U.S. promised to keep close tabs on Fannie Mae and Freddie Mac, the government-sponsored enterprises that have been in conservatorship since 2008.
The U.S. will make sure that Fannie and Freddie have adequate ability to repay their current and future debts and guarantees, according to a statement distributed by the Chinese delegation after the talks. The U.S. also promised it would keep investors informed of developments. Chinese investors are among those that hold Fannie and Freddie securities.
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