Paulson asks China to open up economy

US Treasury Secretary, Henry Paulson has asked China to adopt the economic reforms more quickly. He said on Wednesday that he will urge China to work with the U.S. to reduce dependence on Middle Eastern oil and protect the environment.

Delivering his first speech on the international economy since joining the Bush Cabinet in July, Paulson stressed that the administration will go up against efforts in Congress to punish China for creating a huge trade gap with the United States.

"Protectionist policies do not work and the collateral damage from these policies is high," he said. "We will not heed the siren songs of protectionism and isolationism."

He welcomed China’s rapid growth in the past 20 years and its newly acquired status as a global economic power. He discarded suggestions from critics that Beijing represented a risk to American prosperity and leadership. “We are not afraid of Chinese competition,” he said. “We welcome it.”

Paulson set himself for a clash with those in Congress who have been trying to tighten US rules to make it harder for foreigners to invest in US companies by insisting that the US would keep its own markets open.

He stressed that when he visits Beijing for two days of talks with Chinese officials next week he would discuss economic reforms that the Chinese need to pursue to benefit the Chinese economy.

Paulson seemed to have no intentions of applying extensive pressure on the Chinese to do more to allow their currency, Yuan to rise in value against the dollar as a way of dealing with a huge and rising U.S. trade deficit with China, unlike his predecessor, John Snow, who pursued an increasingly tough line that China needed to move more quickly on the currency issue.

He mentioned that the currency issue is only one of a many economic reforms that China needed to practice but insisted that it needed to tackle urgently the task of reforming its domestic financial markets, its agricultural sector and its broader economy in order to avoid “veering out of control”.

The dollar slipped slightly after Paulson’s speech.