Hu tries to reassure Bush on Chinese products

China leader has ‘friendly’ chat with president, invites him to 2008 Olympics

Jason Reed / Reuters President Bush, right, and Chinese President Hu Jintao appear before the media at the end of their bilateral meeting in Sydney.

SYDNEY, Australia - Chinese President Hu Jintao, on the defensive over recalls of tainted toothpaste, pet food and toys, told President Bush on Thursday that Beijing was stepping up product safety inspections.

Hu was the first to bring up the sensitive subject about recent recalls that have stained the “Made in China” label. Bush expressed America’s concern about the safety of imported products, and stressed to Hu that safety concerns did not amount to trade protectionism.

China has acknowledged that some manufacturers have cut corners and used substandard materials, but that the problem involves a relatively small portion of the nation’s factories. Hu told Bush that the government has set up an agency to oversee the quality and safety of exports, and that officials responsible for wrongdoing have been held accountable.

“The president was quite articulate about product safety, and I appreciated his comments,” Bush said after his sit-down with Hu on the sidelines of the Asia Pacific Economic Cooperation summit.

Taking the safety issue seriously
At a joint news conference with the summit host, Australian Prime Minister John Howard, Hu said his government was taking the product safety issue seriously.

“The Chinese side is willing and ready to work together with the international community to step up cooperation in quality inspections and examinations and further deepen mutually beneficial economic cooperation and trade,” said Hu, speaking through a translator.

As they smiled for cameras after 90 minutes of discussion, Bush called Hu an “easy man to talk to.”

The Chinese leader, who said he had a “friendly” and “candid” chat with Bush, invited Bush to the Olympics in Beijing in 2008.

“He accepted the invitation to go to the Olympics, and he stressed that for him, he was going to the Olympics for the sports and not for any political statement,” deputy national security adviser Jim Jeffrey told reporters after the meeting.

Behind the handshakes and photo-op, however, lurked contentious issues in U.S.-China relations, including human rights, which are not easily resolved. “I had a chance to share once again with the president my belief in religious freedom and religious liberty,” Bush said.

Hu personifies the international concern the U.S. shares over Beijing’s rising clout. If China, already home to 1.3 billion people, continues to grow, its consumer market will be the world’s second largest by 2015.

Beijing-Washington hot line?
Jeffrey said the two nations were working on setting up a hot line between Washington and Beijing much like one the United States and the then-Soviet Union established during the Cold War.

“Hot lines have had a long history of basically serving as confidence-building measures,” Jeffrey said. “I wouldn’t say it would relieve tension, because right now we don’t have tension in the military sphere. What we do have is, we believe, a developing military that, in order to ensure regional security, should be as transparent as possible.”

On climate change, Bush urged Hu to consider eliminating tariffs on environmental and clean-energy technologies and support an APEC leaders’ declaration on climate change. White House advisers say there was no indication that Hu’s stance on global warming would prevent China from signing such a declaration.

The climate change issue is at the top of the agenda for Bush, Howard and the leaders of 19 other Asia-Pacific economies gathered here for their annual summit, held this year in Sydney’s Opera House.

On other issues, Bush told Hu that the international community needed to present a united front against Iran’s nuclear weapons ambitions. China has thwarted attempts by fellow permanent U.N. Security Council members — the United States, Britain and France — to impose harsh U.N. sanctions on Tehran.

They also talked about the Chinese currency. American manufacturers contend the Chinese yuan is undervalued by as much as 40 percent, giving that country a tremendous competitive advantage against U.S. products.

“President Hu indicated that China would continue to reform the currency exchange system and let the market play an increasing role,” said Dan Price, deputy national security adviser for international economic affairs. “Both sides acknowledged that currency reform alone will not solve all of our trade problems, but President Bush emphasized the importance for continued steps by China on the currency issue.”

URL: http://www.msnbc.msn.com/id/20617978/

China rejects pork imports

BEIJING - China has rejected shipments of pork kidney from the United States and of spare ribs from Canada after finding traces of a banned growth agent in them, in the latest volley of cross-border accusations over product quality.

The Xinhua news agency cited the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) as saying that the 18.4-tonne shipment of frozen kidneys and the 24-tonne shipment of frozen pork ribs had been returned to the exporters by local quarantine officials in southern Guangdong province.

The growth agent ractopamine, commonly used in the United States, is at the center of negotiations between U.S. and Chinese officials over the pork trade.

China has banned use of ractopamine and refuses to import pork containing it.

Hopes for a change of stance
Richard Raymond, the U.S. Agriculture Department's undersecretary for food safety, said on Thursday following meetings with the AQSIQ that he hoped Beijing could change its stance on ractopamine if Codex Alimentarius, an international food safety body, could endorse tolerance levels for it.

China has highlighted several quality concerns over U.S. products in recent months, in apparent response to complaints in Washington about the safety of Chinese exports ranging from toys to toothpaste.

Beijing is also taking steps to clean up its own manufacturing sector, whose reputation has been tarnished by recent product recalls, including for lead-tainted toys.

Separately, Xinhua said that authorities had reprimanded dozens of factories in eastern Zhejiang province after finding that 40 percent of the children's clothing they produced did not meet quality standards.

The district where the factories are located, in Huzhou city, makes one fourth of the country's children's garments, Xinhua said. It cited the local quality supervision administration as saying their "quality index" was at its lowest since 2003.

The garments had problems with their dyes, fibre content and stitching, Xinhua said, adding that none of the companies involved exported their products.

The inspection was part of a nationwide campaign to improve product quality and food safety in the wake of the recent scandals, it said.

URL: http://www.msnbc.msn.com/id/20785505/

International
China's Currency Problems
Brian Wingfield, 05.03.07, 6:00 AM ET

WASHINGTON, D.C. -

The pesky problem of China's undervalued currency just won't seem to go away.

Even after Beijing agreed to a gradual appreciation of the yuan in 2005, China's current account surplus has surged to record levels, fueling speculation that the currency needs to appreciate even further.

But when Chinese officials visit Washington later this month in the second meeting of the "Strategic Economic Dialogue" between the two countries, the Bush administration is not expected to push for a major revaluation of the yuan. Instead, the talks will focus primarily on longer-term issues, such as tourism, energy and the environment, intellectual property rights and reducing the U.S.' trade deficit with China.

"China needs to do more on the currency [issue] for a lot of reasons," Treasury Secretary Henry Paulson said in a speech at the Peterson Institute for International Economics. "But I think to get to the trade balance, we're going to have to get to some other things and it's those kinds of things we're focused on--though we're always focused on the currency--to a large extent in the SED."

Specifically, Paulson wants to see stronger and more efficient capital markets in China, increased domestic consumption and more exports from the U.S. to China.

"I don't believe that there's much China could do with the currency that would make a difference in the trade balance," he adds. According to Paulson, if Beijing works to establish competitive and efficient capital markets, this will then lay the groundwork for a currency that is in fact market determined.

It probably is a good idea to let the spat over the exchange rate cool for a while. For at least the past five years, the dispute over China's exchange rate has been a sore subject for many U.S. policymakers who have argued that the cheap yuan has caused a flood of imports into the U.S. and E.U., and displaced millions of jobs, particularly in the manufacturing sector.

But China has let the yuan appreciate against the dollar by 6.6% in less than two years and is not likely to let it rise by much more anytime soon, at least without intense international pressure.

According to Morris Goldstein, a senior fellow at the Peterson Institute, the administration should abandon its "quiet diplomacy" approach and put a "down payment" of 10% to 15% appreciation against the dollar right away.

"The Treasury should press for putting the exchange rate issue at the top of the agenda for the May 2007 meeting of the Strategic Economic Dialogue and for keeping it there until greater progress is made," Goldstein says in a new study on the issue, adding that the administration should report this month to Congress that Beijing has engaged in "currency manipulation."

He makes a compelling argument. According to Goldstein, China's total current account surplus has ballooned from 1% of its gross domestic product in 2001 to 9% in 2006. And if one looks at the real exchange rate--essentially taking into account price differences between the U.S. and China--the yuan has actually depreciated against the dollar. In addition, he says, Beijing has not really allowed market forces to determine the yuan's value, and it continues to flout the International Monetary Fund's guidelines, which prohibit currency manipulation.

On Capitol Hill, Sens. Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C., have echoed these sentiments, arguing that China has continued to manipulate its currency and engage in illegal trade practices in the past two years, and that stronger action on the part of the administration to bring China into line in order to protect U.S. workers.

"Simply put, the current options are not yielding results," Schumer said in recent testimony to the Senate Finance Committee.

But one problem for critics of U.S. policies and protectionists is that the current approach to the currency issue doesn't seem to have had much of an effect on jobs in the economy at large here. According to Goldstein, "The U.S. economy is operating at full employment, and China's exchange rate policies are clearly not a key driver of aggregate employment in the U.S., although they may impact particular groups."

Eswar Prasad, a professor of trade policy at Cornell University, agrees with Paulson that the U.S. should work to help China establish a sound financial system instead of narrowly focusing on the exchange rate between the yuan and the dollar.

"What is really important is for China to have balanced economic growth," he says. Allowing the yuan to float freely could have bad implications if the country's financial system is not in good shape. If people quickly pulled their money out of China, it could send foreign exchange markets haywire. Prasad says the best approach for China is to have a flexible exchange rate while managing its growth.

One of the first rules in diplomacy--economic or otherwise--is to do no harm. At the moment, it doesn't appear that the dollar-yuan exchange rate is having an enormously harmful effect on the broad U.S. economy. The administration has recently levied several complaints against China at the World Trade Organization for its trade policies, and it has slapped anti-subsidy tariffs on some Chinese goods. For now, this seems to be the best approach to dealing with, rather than meddling with, its currency.

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