China Warns Against Trade Sanctions

A Chinese man walks past a billboard showing collage of Chinese Yuan and U.S. dollars in Beijing in this Sept, 19, 2005 file photo.
AP Photo/EyePress
Chinese officials warned American lawmakers on Tuesday against threatening sanctions over trade disputes ahead of talks this month and said there are no plans to speed up currency reforms despite U.S. pressure.

Threats of sanctions if Beijing fails to ease exchange rate controls more quickly could disrupt financial markets and slow those reforms, the officials said. They briefed reporters about the May 23-24 meeting in Washington on condition they not be identified by name.

"What we need to explain is that external voices will only backfire.... Such external voices will only disrupt the normal reform of China's exchange rate regime," said a senior Finance Ministry official.

"We are firmly against any threatening rhetoric or steps to politicize economic issues, because that will only harm the economic interests of both sides," the official said.

The meeting next week, led by U.S. Treasury Secretary Henry Paulson and Chinese Vice Premier Wu Yi, is the second installment of a "strategic economic dialogue" meant to address U.S. complaints about China's swollen trade surplus, currency controls and other issues.

The Chinese officials gave no indication of plans for initiatives that might mollify congressional critics who are pushing President George W. Bush to take action against Beijing.

Pressure on Paulson has increased since the Democrats took control of Congress this year. He is trying to defuse mounting anger among critics who blame low-cost Chinese imports and a $232.5 billion U.S. trade deficit with China last year for the loss of American manufacturing jobs and say Beijing will take action only if it faces sanctions.

China ended a decade-old direct link between its currency, the yuan, and the dollar in July 2005. The yuan was revalued by 2.1 percent at that time and has been allowed to rise by 5.3 percent against the dollar since then in tightly controlled trading.

American lawmakers who say Beijing keeps the yuan undervalued, giving an unfair advantage to Chinese exporters, are threatening to impose punitive tariffs on imports of Chinese goods unless Beijing lets the currency's value rise more rapidly. Economists say a change in the exchange rate by itself is unlikely to close the trade gap.

China says it is carrying out currency reform and other changes sought by Washington because they are in its own interest. But officials say they cannot move faster due to China's poverty and lack of development — a point to which Wu devoted a lengthy presentation at the dialogue's first meeting in December.

Paulson responded to congressional pressure by vowing in February that he would make faster action on currency the benchmark by which he judged Beijing. He has warned that the dialogue must produce results during the process in order to preserve U.S. support for free trade.

According to the Chinese officials, the agenda for next week's meeting includes opening China's service industries to more foreign investment and competition, energy and the environment, balanced economic development and innovation.

The final area is likely to touch on U.S. complaints that China is failing to stamp out its thriving trade in unlicensed copying of music, movies and other goods despite repeated promises.

China is sending as many as 16 minister-level officials, including its commerce and finance ministers and the central bank governor, to next week's dialogue, the officials said.

They appealed to the U.S. side to keep in mind the mutual benefits of the fast-growing trade and investment ties, and they stressed growing cooperation in areas such as North Korean nuclear talks and reform of the United Nations.

"Chinese-U.S. relations have brought real benefits to people on both sides," said a senior Commerce Ministry official.

The officials stressed that despite U.S. urging to make its exchange rate more flexible, Beijing believes that it cannot do so without possibly damaging its economy.

"The financial system of China is still vulnerable to a certain extent, so we should push ahead with financial reforms in a cautious manner," the Finance Ministry official said.

Chinese officials also complained about the difficulty of dealing with a U.S. political system where members of Congress make matters such as the closing of a local factory a matter of national policy.

"Members of the U.S. Congress need to weigh both issues of regional interest and long-term, overarching concerns," said the Commerce Ministry official.

  • Tucker Reals

    Tucker Reals is the foreign editor, based at the CBS News London bureau.