Frustration sets in as China talks loom

BEIJING - For more than a year, U.S. Treasury Secretary Henry M. Paulson Jr. has persuaded congressional critics of China to put off punitive action while he held talks with Chinese leaders on a range of economic disputes.

But as he heads into a new round of negotiations next week, Paulson is facing growing pressure to wrest results from a dialogue that has produced few breakthroughs. U.S. lawmakers frustrated at China's huge trade surplus are drafting punitive measures. Meanwhile, Beijing's support for the contentious talks appears to be waning.

In a sign of China's ambivalence, the meeting, set for Wednesday and Thursday, is to take place at a convention center 45 miles outside Beijing - far from the Great Hall of the People next to Tiananmen Square where talks opened amid fanfare a year ago. Moreover, Paulson's chief dialogue partner, Chinese Vice Premier Wu Yi, is retiring soon.

"We see a 'dialogue fatigue' on the Chinese side," said James Zimmerman, president of the American Chamber of Commerce in China.

Few major deals are expected at the Strategic Economic Dialogue. The governments are expected to sign agreements on helping Chinese exports of food, drugs and medical devices meet U.S. quality and safety standards, in response to recalls of Chinese goods and food.

After last year's talks, China ordered four Westinghouse Corp. nuclear reactors. Even if Beijing makes similar big-ticket purchases this year, it is not clear that a buying spree would mollify Congress or put a dent in the U.S. trade deficit with China, which hit $232.5 billion last year and is projected to be higher this year.

Once the bedrock of the U.S.-China relationship, economic ties have soured in recent years over disputes on the trade imbalance, the Chinese currency's value, tax subsidies said to favor Chinese businesses, and persisting theft of intellectual property.

Representatives and senators who agreed to Paulson's appeal last year to postpone sanctions are at work on measures to punish China, especially if it does not raise the value of its currency, the yuan - which some economists and critics say is undervalued, giving Chinese exporters unfair advantage and driving up the U.S. trade deficit.

One measure, sponsored by Senate Finance Committee Chairman Max Baucus (D., Mont.) and Sen. Charles Grassley (R., Iowa), would base tariffs in part on the amount by which China's currency is deemed to be undervalued. A second, proposed by Sens. Christopher Dodd (D., Conn.) and Richard Shelby (R., Ala.), would direct the administration to pursue currency cases before the International Monetary Fund to pressure China.

Aside from currency and trade, also on the agenda for the talks are energy issues, product safety, and Chinese restrictions on foreign investment in China's financial industries.

Paulson and other defenders of the dialogue have warned that the process will be long.

Even so, Beijing appears to be growing tired of listening to a lengthening litany of U.S. complaints. When the U.S. ambassador held an annual seminar in October on protecting copyrights, trademarks and other intellectual property, few Chinese officials showed up, unlike in years past.

Still, Chinese leaders recognize they have to offer concessions to protect trade ties, though it is unclear how far they will go, said Joseph Cheng, chairman of the City University of Hong Kong's Contemporary China Research Centre.