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US and China to hold trade talks US urges China to speed up reform
(about 12 hours later)
A high-level Chinese delegation has arrived in the US for two days of talks on trade and economic co-operation. The US has called on China to step up economic reforms at high-level talks between the two countries.
The key Strategic Economic Dialogue meeting comes amid growing tension over trade between the two nations. US Treasury Secretary Henry Paulson urged China to address "persistent trade and financial imbalances" as the discussions kicked off in Washington.
So important are these trade talks to China that the country has sent almost half the Chinese cabinet - 16 ministers - to Washington. US firms have criticised China, saying it keeps the yuan low to boost exports, threatening American jobs.
It is the second in a series of talks between the world's fastest-growing economy and its largest, the US. But China's vice premier Wu Yi warned the US it should not "blame others for our domestic problems".
Currency issues Mr Paulson told delegates that the US was "not afraid" of competition from China, but that the US was concerned about the "pace" of policy change in the country.
There is growing anxiety in the US about its soaring trade deficit with China, which hit a record level of $233bn (£118bn) last year. 'Effective measures'
Members of Congress are particularly concerned about the exchange rate between the Chinese currency and the US dollar, which they say makes Chinese imports too cheap. However, Ms Wu did warn that "politicising trade and economic issues is absolutely unacceptable" and would "complicate the situation".
"We're willing to take effective measures together with the US side to address bilateral trade imbalances," she added.
"These measures include increasing imports from the United States by China."
There is increasing anxiety in the US over the growing trade deficit with China, which last year surged to a record $233bn (£118bn).
These fears have prompted members US Congress to press for action against China, with critics claiming the price of the yuan is kept artificially low, giving China's industry an unfair competitive advantage.
Some US Congressmen say the yuan should be revalued by up to 40%.Some US Congressmen say the yuan should be revalued by up to 40%.
Since the Chinese government allowed a limited float of the yuan last year, it has gone up by about 5% against the US dollar.Since the Chinese government allowed a limited float of the yuan last year, it has gone up by about 5% against the US dollar.
Last week, the People's Bank of China increased the amount that the yuan can appreciate each day from 0.3% to 0.5%.Last week, the People's Bank of China increased the amount that the yuan can appreciate each day from 0.3% to 0.5%.
While that was a useful gesture of goodwill ahead of the talks, many currency traders say that because the central bank sets the rate at which the currency starts each day it will make little practical difference.While that was a useful gesture of goodwill ahead of the talks, many currency traders say that because the central bank sets the rate at which the currency starts each day it will make little practical difference.
Political pressures US concerns
The head of the Chinese delegation, Vice-Premier Wu Yi, has warned the US against taking protectionist measures that she said would be irresponsible. China has also been accused of failing to protect the patents and copyright of American companies on goods such as computer programmes and DVDs.
The US has a series of complaints outstanding against China at the World Trade Organisation (WTO). The US has also made a recent complaint to the World Trade Organisation about Chinese government subsidies.
The WTO will this week begin hearing a case brought by the US, the EU and Canada against Chinese barriers to imports of car parts. But many economists say that these factors have a relatively small impact on the trade imbalance.
US Treasury Secretary Henry Paulson needs results from this summit as he faces accusations of using too soft an approach to relations with China and that - as a former chairman of Goldman Sachs - he is too concerned with the interests of Wall Street. They say the deficit in US international trade is due to the fact that American consumers save very little - they buy large amounts of imported goods while consumers in China and other Asian countries save a great deal.
He warned that if dialogue failed, China was likely to become the target of protectionist pressures during the US presidential campaign. Many also say the deficit in the American government's finances contributes to the trade imbalance.
"We have to keep making progress because we need some sign posts to show that we are not just talking the talk but walking the walk," he told the China Daily newspaper.
At the same time, the Chinese delegation will not want to give too much away ahead of the five-yearly Communist Party Congress in October.