US, China Unite to Reduce Global Trade Imbalances

As part of joint efforts to deal with global trade imbalances, China will make its currency more flexible and the United States will increase its national savings rate, U.S. Treasury Secretary Henry Paulson said Friday during an inaugural cabinet-level meeting in Beijing.

The meeting of the American and Chinese delegations began Thursday morning in a cavernous room in the Great Hall of the People in Central Beijing.

Wrapping up two days high-level talks aimed at strengthening the fading relations between China and US, Paulson said that China has pledged greater exchange rate flexibility however, he did not give timetable for changes.

"The United States and China know that our economic relationship is best when it produces benefits for both our countries. And we know that balanced sustainable growth in China is vital to the strength of the global economy," Paulson, who led the US delegation, said.

"We will each take measures to address global imbalances, notably through greater national savings in the United States and through increased domestic consumption and exchange rate flexibility in China, and maintaining open investment in both countries," he added.

Chinese Vice Premier Wu Yi, Paulson's direct counterpart in meetings, described the talks successful and said it would help to boost bilateral trade and economic relations, however, she did not mention the currency dispute in her statement.

"This dialogue has helped both of us to build mutual understanding and enhance trust," she said. On a number of differences that still remained unsolved, she said, "That such differences remain is understandable because the actual situations of China and the United States are completely different."

The two-day discussions were described as a long-range "strategic economic dialogue." To push their economic bonds upwards, US President George W. Bush and Chinese President Hu Jintao launched the talks in September.

Wu said the next talks will be held in Washington in May.

Besides the head of the Environmental Protection Agency, Paulson's delegation includes Federal Reserve Chairman Ben Bernanke, Energy Secretary Samuel Bodman, Commerce Secretary Carlos Gutierrez, U.S. Trade Representative Susan Schwab and Health and Human Services Secretary Mike Leavitt.

Bernanke believes if China pursues currency flexibility then it would improve the standard of the living of the Chinese people as well as would nurture economic stability around the world. "Policies aimed at increasing household consumption would clearly benefit the Chinese people, notably by improving standards of living and allowing the fruits of economic development to be shared more widely," Bernanke said.

Both countries’ delegations agreed to cooperate more closely to encourage trade, open markets, protect the environment and develop cleaner energy sources.

The U.S. critics say the weaker Chinese currency, yuan, puts American manufacturers at a disadvantage. An unfairly undervalued yuan, relative to the US dollar, makes Chinese goods cheaper in the United States and U.S.-made goods more expensive in China.

According to US estimates, the U.S. trade deficit with China in November swelled to $24.4 billion. This gap is expected to be mushroomed at $229 billion this year, surpassing last year's $202 billion, the largest ever with a single country.