Paulson Works For Greater Opening Of China's Markets

U.S. Treasury Secretary Paulson will be meeting with Chinese leaders this week to work toward dropping trade barriers during his visit to the nation.

SHANGHAI, China (AP) - U.S. Treasury Secretary Henry Paulson will be making a pitch Thursday for China to drop barriers to trade, during his visit to the country.

During comments made in Tokyo this week, Paulson said China needs to do far more to open its financial sector and underdeveloped capital markets, for the sake of its own well-being and global stability.

The Treasury Secretary met Wednesday in Beijing with Chinese Vice Premier Wu Yi, a former trade minister, China's most powerful woman and a key point person for dealings with Washington.

Paulson did not make any public comments in Beijing, but in Tokyo on Tuesday he told Japanese officials that the U.S.’s main goals for economic dialogue included opening China's services sector to foreign investment, improving environmental protection and speeding up Chinese economic reforms.

''Their capital markets are underdeveloped relative to their economy,'' Paulson told reporters after a meeting at the Tokyo Stock Exchange. ''As China moves ahead, there will be less risk for the world economy and benefits for Japan and the whole world,'' he said.

Such goals have gained urgency given mounting pressure from the Democratic-controlled Congress on the Bush administration to address the U.S. trade deficit with China, which hit a record $232.5 billion last year.

Paulson has urged China to loosen currency controls that keep the yuan from rising more quickly in value against the dollar. The system, critics say, makes Chinese goods cheap and adds to the trade imbalance.

China's leaders acknowledge that the country's financial markets are a work in progress.

Just a week ago, Premier Wen Jiabao rued the ''many problems'' needed to build up the industry. But they have balked at more drastic reforms that they say might damage the country's fragile financial systems.

But Beijing has domestic politics of its own to consider. With an eye toward a once-in-five-years Communist Party congress in the autumn, leaders are focusing on quality-of-life social issues like free rural schooling, health, housing and pollution.

In January, a major government financial policy conference in Beijing focused on rural lending and on China's management of its more than $1 trillion in foreign exchange reserves. There was little mention of “market-opening” issues.

China made broad commitments to open its financial markets as a condition for joining the World Trade Organization. In December, the banking industry opened to full foreign competition, though foreign investors wanting stakes in Chinese banks are limited to 25 percent.

Many other restrictions remain. Foreigners are largely barred from directly trading in yuan-denominated shares that form the bulk of the share markets. A few select foreign institutions have been given quotas that amount to only a few percent of market capitalization.

The futures markets, which only trade futures in copper, aluminum, natural rubber and fuel oil, are closed to foreign participation. Foreign insurers want Beijing to remove obstacles that limit their ability to set up nationwide operations and that cap foreign ownership of a Chinese insurer at 50 percent.

Given the Democratic-led U.S. Congress's preoccupation with protecting American jobs, it is unclear how much political mileage Paulson can get out of lobbying on behalf of Wall Street, says Edward Gresser of the Washington-based Progressive Policy Institute.

''On the Congressional side, I think the main focus is on piracy issues and currency rates rather than on market access,'' Gresser says. ''Congress has been willing to give him some space to operate on China policy, but I have a feeling they are now beginning to look for results.''