UPDATE 2-US' Paulson-China must recognize global trade role

(Adds details on Paulson trip to Olympics)

By David Lawder

WASHINGTON, Aug 4 (Reuters) - U.S. Treasury Secretary Henry Paulson said on Monday that China should accept greater responsibilities for its growing economic influence and he chided Beijing for what he called a protectionist stance in global trade talks.

In an article published by Foreign Affairs magazine on Monday, Paulson wrote that China also has made progress on allowing its yuan currency to rise, but further appreciation was needed to help it deal with rising inflation.

"As a country deeply invested in the global economic system, China would benefit from playing an increasingly proactive role in global economic decision-making," Paulson wrote. "And yet it seems to be doing the opposite in the Doha round of international trade negotiations."

"Its insistence on protecting its own industrial development is driving other countries to do the same and has been a major factor in the growing anti-globalization and protectionist sentiment around the world," he wrote.

Intensive talks to rescue the Doha round of trade talks collapsed last week after the United States and India refused to compromise over a proposal to help poor farmers deal with a potential flood of imports.

China also had supported the "safeguard mechanism" that would have allowed developing countries to raise tariffs if imports of food products reached trigger levels.

Paulson's opinion piece was published just before he travels to Beijing on Thursday for a week-long personal trip with his family to attend the Olympic Games.

Paulson is planning no public events while in Beijing, but is scheduled to participate in an interview on NBC television's "Meet the Press" program on Sunday. A Treasury spokeswoman said Paulson may take the opportunity to hold private meetings with some Chinese government officials.

In the article, Paulson said he believed Chinese trade and investment policies were increasingly geared toward promoting "national champion" Chinese companies.

"China's foreign-investment regulations are opaque and increasingly restrictive, and the government continues to grant major subsidies to key domestic industrial sectors," Paulson wrote. "Heavy lobbying by local authorities and by profitable and powerful Chinese businesses is shaping Beijing's industrial policy."

However, he said progress was being made in developing the U.S.-China economic relationship through a series of high-level dialogue talks called the "strategic economic dialogue." This has helped manage short-term trade tensions and has alleviated some concerns in the U.S. Congress "in a way that has led to a significant appreciation of the (yuan) and forestalled dangerous protectionist legislation," he added.

The 20 percent increase in the yuan's value against the dollar from July 2005 to mid-June 2008 was an example of the the dialogue yielding results, he said.

"Currency appreciation and greater flexibility in China's exchange rate could limit the impact of rising world oil and commodity prices on prices in China and at the same time allow Chinese monetary policy to be a more effective tool for ensuring stable growth," Paulson said. (Reporting by David Lawder, editing by Gary Crosse)