US, China to tackle inflation in talks: Paulson


Posted at Jun 10 2008 11:27 PM | Updated as of Jun 11 2008 07:27 AM

Agence France-Presse

WASHINGTON - The United States and China will tackle rising inflation at the opening of bilateral economic talks next week, US Treasury Secretary Henry Paulson said Tuesday.

"Managing financial and macroeconomic cycles will be our first discussion topic next week. Both the United States and the Chinese economies face current challenges, including adjusting to higher energy and food prices," Paulson said in a speech at a Washington think tank, according to the prepared text.

His remarks came after the Shanghai stock market plunged seven percent, its worst one-day slump in a year, after China's central bank tightened credit conditions to contain inflation.

Paulson said the fourth meeting of the US-China Strategic Economic Dialogue (SED) would also focus on issues including trade and open markets, investment and advancing opportunities for cooperation in energy and development.

The US Treasury chief said he was looking forward to working with China's newly appointed leadership team, and in particular his new counterpart, Vice Premier Wang Qishan.

"It is clear that our strategy for robust engagement with China -- intensive dialogue but with resort to WTO dispute settlement and WTO-sanctioned trade remedies if needed -- is more productive than protectionist policies or legislation," Paulson told the Carnegie Endowment for International Peace.

Paulson noted that the United States was working through a housing market slump and a repricing of risk in credit markets, while China was grappling with rising inflation and growing internal and external macroeconomic imbalances.

"China’s imbalances stem largely from an economic structure that has become too heavily dependent on industry, investment and exports. This has led to a growing trade surplus, high energy use, environmental degradation and rising domestic inequality," he said.

Trade with China is a politically sensitive issue in the US, with critics saying China keeps its yuan currency undervalued to support exports.

Paulson's spoke shortly after the Commerce Department reported the US trade deficit in April surged to 60.9 billion dollars. The monthly jump in the trade gap of 7.8 percent was the largest since September 2005 and was higher than economists' estimates of 60 billion dollars.

The trade deficit with China soared 25.9 percent to 20.2 billion dollars, representing one-third of the overall gap.

The SED meeting between high-level US and Chinese officials will be held June 17-18 in Annapolis, Maryland.