In Beijing Talks, Issues Of Will And Way

BEIJING, Thursday, Dec. 14 — When Treasury Secretary Henry M. Paulson Jr. proposed a strategic economic dialogue with China last summer, American officials were cheered by the choice for leader of the Chinese team: an aggressive troubleshooter with a reputation for tough but successful trade negotiations since the early 1990s.

Treasury Secretary Henry Paulson and Vice Prime Minister Wu Yi of China at the start of Thursdays meeting in the Great Hall of the People.

But in the last few months, American officials and specialists on China have said that Wu Yi, a vice prime minister and the countrys highest-ranking female official, might not have the inclination, or the influence, to challenge the party apparatus that is tied to the sprawling state-owned export industries.

China appears to view the dialogue less as a vehicle for adjusting its policies than as a means to air its opinion that the United States should alter its economy to end an addiction to Chinese goods and loans that sustain gigantic American trade and budget deficits.

Im not expecting any miracles, said Yu Yongding, director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences in Beijing.

This visit by Mr. Paulson will have some influence on Chinese political leaders, but China always prefers gradualism, he said.

Mr. Yu, an Oxford-trained economist whose institute will be the location for a major speech on Friday by Ben S. Bernanke, the Federal Reserve chairman, said Ms. Wu was not seen in China as especially sympathetic to the main American demand in the talks — that China stop manipulating its currency in order to expand exports.

I have been arguing for a change in economic policy for years, but my voice is quite lonely, Mr. Yu said. He added that however understanding Ms. Wu might be, she and the Communist Party are largely beholden to Chinas export sector, which accounts for more than a third of the countrys economy.

The United States wants China to let its currency, the yuan, float in relation to the dollar. Most economists say this would cause it to rise in value, raising the cost of exports for American consumers and reducing the cost of imports into China. Congressional leaders and business executives say currency reform should be Mr. Paulsons priority.

The American argument is that it is in Chinas interest for it to channel its surplus of investment capital not into export industries, but into improving the lives of Chinese citizens and promoting a service- and consumer-led economy that does not use as much energy to run and does not further degrade the environment.

But a transition to that kind of economy could take years, maybe decades. Moreover, some economists argue that the fixation on the dollar-yuan relationship is a distraction from larger problems like the low savings rate in the United States and low consumption in China.

In the meantime, the Chinese fear that letting the yuan float upwards could weaken Chinas export-driven economy. The textile industry alone supports 90 million workers but makes minuscule profit, Mr. Yu said, so a drop in sales could force millions out of work or require more subsidies to keep them employed.

Mr. Paulson arrived here Wednesday with Commerce Secretary Carlos M. Gutierrez; Labor Secretary Elaine L. Chao; Health and Human Services Secretary Michael O. Leavitt; Energy Secretary Samuel W. Bodman; Susan C. Schwab, the United States trade representative; and Stephen L. Johnson, head of the Environmental Protection Agency.

The meeting of the American and Chinese teams began Thursday morning in a cavernous room in the Great Hall of the People, where the two sides were arrayed in tiers on opposite sides of the room.

Ms. Wus opening remarks, according to a text provided by the Chinese government, declared that some American friends had much misunderstanding about the reality in China." She then offered a lengthy discussion of Chinas history going back 5,000 years and focusing on its maintaining a socialist market economy system with state-owned enterprises as a mainstay.

Aside from general promises to continue opening Chinas economy to outside investment and market forces and to protect the intellectual property rights of American makers of videos, software and other goods, there were no pledges to take further actions the United States wants.

There were also no references to currency policies, except to say that China would bring into better play the basic role of the market in allocating resources. Reform and opening up are the most distinct characteristics of contemporary China, she declared.

Mr. Paulson, in shorter opening remarks, also repeated familiar themes, declaring that China and the United States were responsible for half the worlds recent economic growth and must produce tangible results from the dialogue started this week.

For China, he said, that meant opening markets further, promoting domestic consumption and allowing currency values to fluctuate according to market forces.

But although Congress is calling for quick action, Mr. Paulson said he understood that various reforms should be enacted over the next several years, suggesting that there were no quick fixes.

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