Paulson to Press China on Economic Reforms

Treasury Secretary Henry M. Paulson Jr. said Wednesday that he would urge the Chinese to move more quickly to adopt economic reforms, including a more flexible currency.

But in his first speech on the international economy since joining the Bush Cabinet in July, Paulson stressed that the administration would oppose efforts in Congress to punish China for a soaring 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.”

Paulson sought to lower expectations that he would achieve any breakthroughs when he visits Beijing for two days of talks with Chinese officials next week. He stressed, instead, that he would discuss economic reforms that the Chinese need to pursue that would benefit the Chinese economy.

Paulson’s first extended remarks on China signaled an apparent shift in an administration strategy away from applying extensive pressure on the Chinese to do more to allow their currency, the yuan, to rise in value against the dollar as a way of dealing with a huge and rising U.S. trade deficit with China. Last year, that red-ink figure was $202 billion, the biggest imbalance ever recorded with a single country.

Although former Treasury Secretary John W. Snow, Paulson’s predecessor, pursued an increasingly tough line that China needed to move more quickly on the currency issue, Paulson adopted a less confrontational approach in his speech.

He mentioned the currency issue only as one of a number of economic reforms that China needed to pursue. He said China also needed to modernize its rural economy, overhaul its capital markets and promote more domestic-led growth by getting Chinese families to reduce extremely high savings rates by spending more.

And Paulson specifically said the administration would oppose any efforts to erect trade barriers in this country to deal with the soaring trade deficit, which is on track to set a fifth consecutive record this year.

Democratic critics have charged that the administration has not done enough to deal with the soaring deficits, leveling much of their criticism at China, the country with the largest trade gap with the United States.