In China, Paulson eyes debate shift to environment

XINING, China (Reuters) - U.S. Treasury Secretary Henry Paulson on Sunday acknowledged high trade tensions with China and said he would start a four-day visit by focusing on an issue with more common ground: the environment.

U.S. Treasury Secretary Henry Paulson speaks during a news conference in Montevideo July 12, 2007. REUTERS/Pablo La Rosa

Aiming to keep his strategic economic dialogue with China on track amid controversies over Chinese product and food safety and currency legislation gaining momentum in the U.S. Congress, Paulson will visit Qinghai lake in western China on Monday before meeting President Hu Jintao and Vice Premier Wu Yi on Tuesday and Wednesday.

The lake and surrounding glacial watershed are threatened by global warming and encroaching desert, with Paulson saying the area was a strong symbol of the need for U.S.-China cooperation on environmental issues.

“There is much more tension in the trade area, so this is an important area where there is less tension and I think it’s a good place to start this trip,” Paulson told reporters on his plane on the way to China.

He said he would again press Hu and other top officials for faster appreciation of China’s yuan currency and other reforms, such as moves to rebalance the Chinese economy away from exports and toward more domestic consumption and to increase foreign access to China’s financial services sector.

Paulson’s visit comes as U.S. lawmakers, frustrated with slow progress in reducing U.S. trade deficits with China, are advancing legislation aimed at pressuring Beijing to allow open markets to set the yuan’s value.

The U.S. Senate Finance Committee last week passed a bill that would allow companies to seek anti-dumping duties against products from countries that have “fundamentally misaligned” currencies and eventually intervention by the Federal Reserve.

Many U.S. lawmakers and manufacturers believe the yuan is deliberately undervalued by 25 to 40 percent, keeping Chinese products cheap in U.S. consumer markets. Sen. Charles Grassley of Iowa, a Republican, said the bill would end the Bush administration’s “pussyfooting” over the currency issue.


Paulson sought to rebut criticism that the strategic dialogue with China, launched in December 2006 to link top officials, had achieved little so far, citing a more than 9 percent appreciation in the yuan against the dollar since July 2005 and increased access to China for U.S. airlines.

“We are getting results through this process we wouldn’t have achieved without it,” he said.

But he reiterated that the Chinese needed to allow the yuan to appreciate more quickly and said tensions over trade and currencies were likely to continue, adding that the dialogue “wouldn’t make the problems go away.”

Chinese officials “may not be pleased” about the U.S. currency legislation but should not be surprised after receiving warnings from lawmakers since the last dialogue meeting in May, Paulson said.

Environmental and energy issues were among the most productive areas of the May meeting. The two sides agreed to further talks on eliminating tariffs on environmental goods and services and announced clean coal technology projects.

China’s booming economy has put a severe strain on its environment, with air and water pollution reaching critical levels in heavily populated areas and sparking protests.

China is expected to soon overtake the United States as the world’s largest source of greenhouse gas emissions.

Neither country has signed the Kyoto protocols for reducing carbon emissions, although U.S. President George W. Bush is trying to form his own coalition of the 15 largest carbon emitters among industrialized and developing countries.

Paulson said “air and water don’t know national boundaries” and added that he believes Hu wants to address China’s environmental problems.

In Qinghai province, Paulson saw an opportunity to keep the dialogue going on the environmental front in the hopes of solidifying his relationship with Chinese officials.

“Do I think that working together on the environment is going to make it easier to work together on the currency and other things? Not necessarily,” Paulson said.

“What’s important to making progress on all of them is building the relationships, the trust that lets us manage our discussions, a respectful and a mature and a professional manner to keep the relationship on an even keel.”

Paulson said the Qinghai lake region illustrated the problems of greenhouse gas emissions and climate change because rising temperatures are causing the lake to shrink and glaciers to melt, which could threaten the source of several major rivers in Asia.