As the year drew to a close, the US treasury secretary Henry Paulson was roundly criticized in the American media for the seemingly skimpy progress made in Beijing last month by his delegation of cabinet secretaries, ambassadors and agency heads who met with their Chinese counterparts. The lack of headline-making breakthroughs on trade and currency issues, however, belied the real progress that was made in behind-the-scenes sessions, such as Paulsons private meeting with Chinese president Hu Jintao.
Paulson, an experienced China hand, knows better than anyone that change in the Middle Kingdom will be glacial, but that it will alter the landscape significantly in the long run. He was subjected to a lecture by vice premier Wu Yi about Chinas 5,000 years of experience as a global citizen. Wu noted that China has ratified the Kyoto Protocol on global warming, for example, something her guests could not boast of.
Paulsons quiet diplomacy reflected the reality of the situation. China does not want to be seen as kowtowing to American capitalists. Whats more, Beijing is the US Treasurys best customer for its bonds, and Paulson is clearly aware that its not wise to browbeat your biggest customer.
The yuan has appreciated steadily since the July 2005 revaluation and is now nearing parity with the Hong Kong dollar. Meanwhile, Chinas banking system has been restructured, and its own citizens are becoming bigger consumers. We cannot resolve every difference in a single meeting, Paulson said, but the candid discussions we have had will make progress much more achievable.
Among the tangible results of last months talks, the New York Stock Exchange and Nasdaq won approval to open offices in China. GE Aviation signed a $550 million deal with Shanghai Airlines. More progress is likely at the next round of talks in Washington in May if the US Congress can keep its powder dry.