A China-US Economic Team

September 22, 2006 at 6:15 am (China, Economics, US)

Finally two sides decided to stop bickering. (click here to read New York Times report. Washington Post’s Peter Goodman also reported about this.)

The US and China fell into an endless mutual criticism on the trade issue. The US congress has been tough to China, although the federal government averts the pressure and still avoids to name China as a currency manipulator. On the other hand, despite much appeals from inside and stress from outside, Chinese government insists a sluggish move on the yuan rate, and continues to blame the US itself for the tremendous trade deficit.

Since Paulson took over the position of Treasury Secretary, he has been hailed as the best person to soothe the tension between two countries, not only because of his fine record working with Chinese when he was the head of Goldman Sachs, but also his bipartisan position. If there is someone who can both persuade China and alleviate Congress’ displeasure, it’s Paulson.

China’s central bank governor Zhou Xiaochuan showed his amity and sincerity when he had dinner with Paulson in Singapore. Chinese government responded to Paulson’s visit by allowing the yuan to strengthen to it’s highest since the government dissolve the peg policy and introduced a managed float rate last July.

Paulson said two sides reached consensus that the yuan must get more flexible but still disagreed on the timing. This isn’t surprising. Only the most naive will predict China relax the exchange rate in a short term, or merely because of a visit of a new Treasurer . Paulson is right when he warned the US Congress not to have a short-term mentality on cases as complex as China’s economy. Setting up a team to work with mutual respect and understanding is the only way to overcome the impasse.

(Washington Post has another good report on Paulson’s visit to China.)

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