Paulson Pressures China On Currency Reform
By Jessica Holzer
Click Here to Read the Story at Forbes.com
Having set foot in China on a three-day official visit, U.S. Treasury Secretary Hank Paulson gave a first glimpse of what looks to be patient strategy of pressing China to reform its economy and loosen its grip on its currency.
Paulson told reporters on Wednesday that a stronger yuan was in China's best interest and that he didn't care how the Chinese arrived at greater currency flexibility.
"I'm going to know flexibility when I see it," he said.
He added that he didn't support the approach of Senators Lindsay Graham, R-SC, and Charles Schumer, D-NY, who are threatening legislation that would slap a 27.5% tariff on Chinese imports unless the Chinese allow the yuan to appreciate significantly.
Coinciding with Paulson's visit, China and the U.S. announced they would begin to hold regular discussions of their long-term economic relationship.
Paulson's soft touch befits a statesman who does not need to grandstand before voters and who may possess a measure of insight into the opaque decision-making process of Chinese officials.
As the former chief of Goldman Sachs, Paulson successfully cajoled Beijing into allowing the investment bank to skirt stringent ownership rules to become the first foreign company to buy a Chinese investment house. Paulson has made roughly 70 trips to China, including some as a tourist.
For their part, Chinese officials seem curious about the new Treasury secretary. Among other Communist Party bigwigs, Paulson was granted an audience with the Chinese President himself.
"They're very interested in Paulson, not just because he's connected to senior political leaders but also to senior business leaders through his Wall Street background," says Ben Carliner, the Director of Research at the Economic Strategy Institute in Washington.
Through their policy of keeping the yuan cheap to boost exports, the Chinese central bank has racked up nearly $1 trillion in foreign exchange reserves. And last year, the Chinese trade surplus ballooned to a record $200 billion.