China, US pledge $20 billion for trade

05 Dec 2008


US and China have pledged $20 billion in a bid to stimulate flagging global trade amid the worldwide economic slowdown and credit squeeze. This announcement was made at the end of a two-day strategic economic dialogue meeting between US treasury secretary Henry Paulson in Bejing.

Of the $20 billion, $12 billion will be provided by the US and the remaining $8 billion by China. Senior trade officials from China and the US pledged to fight moves toward protectionism brought on by the global financial crisis.

China has faced a slowing demand for its exports as the global financial crisis mounts.

Treasury secretary Henry Paulson, the US envoy to the US-China strategic economic dialogue, said at the end of high level talks on the world economy that the two countries were both committed to strengthening the global economy.

Paulson added that US and Chinese government export-import banks will make money available to importers, including those in developing countries, who have found it difficult to get credit to buy goods.

With banks globally tightening their lending, importers are finding it increasing difficult to get credit to buy goods. Most factories find their customers running short of cash to buy their goods, causing further impediment to growth of the economic.

This effort should support over $38 billion in annual financing for exports from the US and China and would benefit the global economy, Paulson added.

 Analyst's however point out that the amount is relatively small and was unlikely to make a major difference.

Vice Premier Wang Qishan.and China's central bank governor, Zhou Xiaochuan urged Washington to rein in debt-fueled spending, stabilise its economy and protect Beijing's US investments. The Chinese comments reflect the economic giant's growing assertiveness and a role reversal after usually being on the receiving end of calls from the US for currency and financial reforms.

"The important reasons for the US financial crisis include excessive consumption and high leverage," China's central bank governor, Zhou Xiaochuan, told US officials. ''The United States should speed up domestic adjustment, raise its savings rate and reduce its trade and fiscal deficits.''

Paulson said he had pressed the Chinese delegates to the dialogue to allow the yuan to appreciate more quickly to ease trade tensions - echoing concerns from US businesses, which say that an artificially low yuan gives Chinese exporters an unfair advantage and adds to China's balloning trade surplus.

Some American lawmakers have been calling for punitive action against Beijing.

US officials said China promised more currency reforms. But no breakthroughs on that or other major disputes were announced at the talks, which are meant to address the long-term growth of US-Chinese economic ties.

Wang said China's ability to maintain domestic growth, and so help lift the global economy was top priority and remained focused on restoring market confidence to avoid the spread of the financial crisis and avert recession.

Wang did not explain as to what he meant by protecting Chinese investments. Currently Beijing owns $585 billion in US Treasury debt, which has helped finance US budget deficits and other US assets that China holds, which are increasing. The financial crisis compounded by a weak dollar are causing concern in China about the safety of the investments.

Wang also said Beijing desired an improvement in reforms by international financial institutions - referring to China playing a bigger role in the International Monetary Fund and other financial institutions.

Since Beijing decided to cut its peg to the dollar in July 2005, the yuan has risen 20 per cent against the US currency. The nearly 1-per cent decline of the yuan against the dollar on 1 December - its the biggest one-day drop in three years -  suggests a subtle warning to President-elect Barack Obama in case the US adopts a hard line torwards China.

The Chinese economy is growing at around 9 per cent, lower than 11.9 per cent the previous year, whereas the US economy is in recession. China's growth rate is expected to slow to about 7.5 per cent next year. China risks massive social turmoil next year as the economy slows with increasing job losses.

In a concluding statement, Wang said China was looking forward to a candid and pragmatic talks with the US president-elect, Barack Obama and the US administration.

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