Tag Archives: Henry Paulson

Paulson’s Flying Trip To Beijing Provides Little Cheer

U.S. Treasury Secretary Henry Paulson’s flying visit to Beijing to prepare for the next round of strategic economic dialogue due in June was a glummer than usual affair.

Squeezed in between Washington appearances on Monday to announce his plan to restructure America’s financial regulation and a Thursday U.S. Senate hearing on the Bear Stearns bailout, Paulson briefed Chinese leaders on the U.S. economy and the risks that the credit crisis posed to the real economy.

Not that Chinese leaders haven’t been paying attention. “There is no doubt that what’s happening in U.S. markets clearly has to give pause to the Chinese,” over its own financial markets liberalization, the FT quotes Paulson as saying. “They may be too polite to say it directly.”

Concern, too, over investment – where both countries have been complaining about growing protectionism against each other. “This is an area where there has been a loss of confidence on both sides. More work needs to be done,” Paulson said.

The recent accelerated appreciation of the yuan, which has risen against the U.S. dollar at an annualised rate of about 15%-20% so far this year, was a rare bright note.

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Inflation More Than Washington Behind Yuan’s Rise Against Dollar

When U.S. Treasury Secretary Henry Paulson arrives in Beijing on Wednesday, the Chinese currency might coincidental break through the symbolic seven to the dollar level. As Richard McGregor writes in the FT “the currency has become a litmus test of Chinese responsiveness to U.S. complaints on trade.”

Yet what really is driving the recent strengthening of the yuan — it has risen more than 15% so far this year, more than in the previous two and a half years — is domestic inflation not Washington’s grumbling. Beijing is finding it increasingly difficult to sterilize the economy against the inflationary impact of the foreign exchange reserves piling up because of the trade surplus.

With inflation running at a 12 year high, that has become a more important policy imperative than supporting exporters and inefficient state owned enterprises that are in no fit state to compete against imports. Plus it gets it a few bonus brownie points in Washington — if not Brussels or Tokyo.

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