US, China Pledge to Jointly Tackle Global Crisis

Friday, December 5, 2008

US, China promise to work together against global crisis, pledge $20 billion to finance trade


The United States and China pledged Friday to work together to tackle global financial turmoil as they wrapped up economic talks but left open whether the high-level dialogue will continue under President-elect Barack Obama.

Ending the fifth meeting of the two-year-old Strategic Economic Dialogue, the two sides promised $20 billion to finance imports by developing countries and cooperation on regulating financial risks. Beijing said it would let local subsidiaries of foreign banks trade stocks in its market and Washington promised to speed up licensing of Chinese banks.

"China and the United States make clear their steadfast determination to jointly face the international financial crisis," the chief Chinese envoy, Vice Premier Wang Qishan, said at a closing ceremony, flanked by U.S. Treasury Secretary Henry Paulson.

The two days of talks were marked by a pointed Chinese appeal to Washington to stabilize its economy and rein in debt-fueled spending that Beijing's central bank chief said Thursday was to blame for the financial crisis. The appeal reflected Beijing's growing assertiveness and its close links with the United States, where it is a major investor in U.S. Treasury debt that finances the government budget deficit.

A key issue for Washington is China's currency controls, and U.S. officials said Beijing promised to continue reforms that have let its yuan rise against the dollar. Washington and other trading partners say the yuan is kept undervalued, giving China's exporters an unfair price advantage and adding to its trade surplus.

Paulson declined to say whether the dialogue might continue after Obama takes office in January but said both sides regard it as a great success.

"China looks forward to continuing candid and pragmatic talks with the new U.S. administration," Wang said.

Obama has yet to say whether he will continue the dialogue, which was begun to address trade issues and mollify American lawmakers who want to punish Beijing over its swollen trade surplus and currency controls. Some analysts say the new president and the Democrat-dominated U.S. Congress might take a harder line on China.

The chairman of the U.S. Senate Finance Committee, Max Baucus, appealed to Obama to continue the dialogue.

"At this time of unpredictability in our world, high-level engagement with China must be a constant," Baucus, a Democrat from Montana, said in a statement.

The American Chamber of Commerce in China issued a similar appeal.

The trade credits will be provided by Chinese and U.S. government export-import banks to finance purchases of goods from the two countries by developing economies where lending has dried up as global turmoil spread. Officials said the $20 billion would support $38 billion in annual trade as short-term loans were repaid and the money lent out again.

"Some of the distortions in credit markets are making it difficult for some developing nations to participate in trade," Paulson said.

Beijing also said it would increase the amount of money local subsidiaries of foreign banks have available for lending by allowing them to obtain loans from affiliates abroad.

That would help to expand the pool of credit to finance a 4 trillion yuan ($586 billion) government stimulus package to shield China from the global downturn by boosting economic growth through extra spending construction and other projects.

China's economic growth is expected to slow this year to about 9 percent, down from last year's 11.9 percent. Communist leaders worry about rising job losses, especially in export industries that have been hit by the global slowdown, and possible unrest.

The two sides also agreed to jointly combat possible pressure for trade protectionism as economic conditions worsen. Paulson said some in China will blame hard times facing its exporters on Beijing's decision to let the yuan rise against the dollar and agitate for that to be reversed.

"I think the Chinese recognize, as we do, how important currency reform will be to rebalancing growth," Paulson said, referring to Beijing's effort to boost domestic consumer spending and reduce reliance on exports.

The yuan has risen 20 percent against the dollar since Beijing cut its peg to the dollar in July 2005. But it has fallen this week in government-controlled trading -- including a nearly 1 percent decline Monday, its biggest one-day drop in three years -- in what analysts suggested was a message from Beijing to go easy on the issue.

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