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U.S., China Vow to Work Together, Avoid Currency War

Thursday, 04 Dec 2008 03:54 PM

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BEIJING -- China and the United States vowed Thursday at a top-level meeting in Beijing to cooperate in tackling the global economic crisis, even as they sparred over Chinese exchange rate reform.

Following a recent weakening of China's currency, the yuan, US Treasury Secretary Henry Paulson's team pressured their hosts on the contentious issue on the first day of their twice-yearly Strategic Economic Dialogue (SED).

"We certainly emphasised the importance in our view of continued currency reform, and that currency reform is important for continuing to re-balance China's economy," a senior US official said on the first of two days of talks.

"There was a fair amount of discussion on the Chinese side about the challenges they face but also a restatement of their commitment to continued currency reform," he said, briefing reporters on condition of anonymity.

Concerns are emerging abroad that China may freeze or reverse currency reform to help its struggling export sector, as evidence mounts the world's fourth biggest economy is increasingly suffering in the global slowdown.

US and European countries claim that China is keeping its tightly managed currency artificially low to give its exporters an unfair advantage, allowing their products to be unfairly sold cheaply overseas.

The yuan was de-pegged from the US dollar three years ago and has appreciated by about 20 percent since.

But the climb stalled in the middle of this year, and the yuan even fell sharply early this week in what some saw as a signal China intended to weaken it for the benefit of Chinese exporters.

However, China's commerce minister Chen Deming said Thursday he expected the yuan to remain stable in the absence of any major disturbances in the global financial system.

"If there's no major change to the overall international economic environment, and if everybody continues to work together in a serious manner to deal with the ongoing financial crisis, I think we will still be able to keep (the yuan) stable," he said.

US Trade Representative Susan Schwab said China understood the dangers of protectionism.

"I came away with a very clear sense that the Chinese ministers and leaders involved in our conversations today recognise the downside risk of policies by any of us that would likely prompt sort of a downward spiral of trade protection," she said.

Paulson also said at the start of the meeting that there was a spirit of cooperation in tackling the unprecedented challenges posed by the crisis.

"For the first time during the SED, the US and China will focus on how we can work together through international forums to strengthen the global economic system," he said.

The US delegation has come to Beijing after more data out of the United States this week showed the world's biggest economy is diving into recession.

With all eyes on China amid hopes it can maintain strong economic growth to cushion the world's slowdown, Paulson's counterpart in the meeting, Vice Premier Wang Qishan, expressed similar sentiments.

"Jointly dealing with the international crisis is the most pressing task we are now facing," Wang said at the start of the talks, held in the Diaoyutai State Guest House in western Beijing.

He urged the United States to safeguard Chinese investments there.

"We hope the US side will adopt every necessary measure to stabilise its economy and financial markets and ensure the safety of China's assets and investment in the United States," he said.

China is now the largest holder of US government bonds, owning 585 billion dollars of Treasuries as of late September and overtaking Japan as Washington's top creditor.

Late Thursday, the two sides signed 10 documents in the fields of energy and the environment, including seven voluntary partnerships focusing on issues such as hybrid cars.

The SED has taken place since 2006 and is the highest-level forum for exchange between economic policy-makers of the two nations.

This round is the last under President George W. Bush's administration. His successor, Barack Obama, has not indicated whether the talks will continue on his watch.

© 2008 Agence France Presse. All rights reserved.

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