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China risks backlash on currency policy: Paulson
2007-11-09
Beijing's reluctance to adopt a flexible exchange-rate regime is widely considered unfair and puts China at growing risk of a protectionist trade backlash, U.S. Treasury Secretary Henry Paulson warned on Thursday. "China is increasingly seen as out of step with international norms and expectations, as evidenced by the growing number of national leaders and multilateral organizations calling for currency appreciation," Paulson said in prepared remarks for delivery to the China Institute in New York. A copy of Paulson's remarks was provided in advance. Paulson, who will travel to Beijing in December to continue a so-called "strategic economic dialogue" initiated with China in 2006, said China's "extraordinary" growth was creating growing imbalances that threaten to spur trade conflict. He said Beijing needs to let market forces play a greater role by adopting "a much more flexible, market-driven exchange rate" to replace its practice of managing the value of the yuan, also called the renminbi, within a narrow band. China has pledged to move toward a more flexible currency as part of a broad package of reforms, though at its own pace; Paulson left no doubt the Bush administration considers Beijing is moving too slowly. Paulson said he was doing his best to resist protectionist calls in the United States against China, but added, "Frankly, it is easier to keep the U.S. economy open if the American public sees China continuing to open up their markets." He said if China doesn't speed up reforms, it may face consequences. "Given growing protectionist sentiments around the world, if Chinese reforms slow, China may confront a backlash from other nations," Paulson said. He suggested China could "leap-frog years of costly and problematic practices" simply by opening its financial-services sector to foreign competition. Paulson has been pressing China steadily to let its yuan currency rise more rapidly in value, which might help stem the surpluses that China is racking up on its trade with the rest of the world, but so far with little visible success. Nonetheless, he noted that the Group of Seven industrial countries concluded at the end of a Washington meeting two weeks ago that faster yuan appreciation was needed and suggested that represented a rising chorus of calls for Chinese action. "While some in China and elsewhere may see danger in moving too quickly with reforms, I believe moving too slowly is the bigger risk to Chinese and world prosperity," Paulson said. (Reporting by Glenn Somerville)
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