U.S. presses China to open markets, faces dollar criticism

At the start of discussions in Annapolis, Maryland, east of the US capital, US Treasury Secretary Henry Paulson said economic difficulties facing both China and the United States should not lead to trade and investment restrictions.

"As we manage through the current challenges, we must also focus on the long-term fundamentals that underlie sustainable growth in both our nations," said Paulson, who led the US side to the two-day cabinet-level "strategic economic dialogue" (SED) at the US Naval Academy.

"Openness and trade create jobs and opportunities for people to rise out of poverty, and are necessary for economic growth and stability -- in both China and in the United States," he said, with Chinese Vice-Premier Wang Qishan by his side and cabinet ministers from the two nations standing behind them.

Wang, who led the Beijing team to the dialogue , warned against politicizing economic issues and moved to deflect any criticism by highlighting the US housing market crisis that has led to massive losses in the finance sector and a global credit crunch.

"In an effort to solve the frictions and differences between the two countries through dialogue and in order to reduce misunderstandings, we should try to avoid major economic issues from being complicated and politicized," said Wang, making his maiden appearance at the twice-yearly SED launched in 2006.

But China's central bank governor Zhou Xiao Chuan was more critical, saying the falling US dollar was driving up oil and other commodity prices, stoking inflation and causing pain to developing nations.

Speaking after meeting US Federal Reserve chairman Ben Bernanke and Treasury chief Henry Paulson at a session on "managing financial and macroeconomic cycles," Zhou said rocketing commodity prices were putting undue "pressure" on the Chinese currency and driving up inflation in China.

"Many developing countries are already feeling the pinch," said the head of the People's Bank of China.

The dollar continues to fall despite apparent attempts by Washington to talk up the currency so as to keep a lid on inflation and limit the need for higher interest rate hikes that could stifle economic growth.

The yuan has appreciated about 20 percent against the dollar over the last three years.

The United States and China have expressed concern over protectionism amid their economic difficulties, fuelled by rocketing oil and food prices and financial market instability.

China is grappling with rising inflation and growing macroeconomic imbalances while the United States is also on alert against price pressures despite a weak economy.

US officials were believed to have again raised the issue of the value of the yuan, which some say is artificially low and thus a factor in the massive trade imbalance between the two countries.

The United States is saddled with a ballooning trade deficit with China, which hit a record 256.2 billion dollars last year.

Setting the stage for the talks, American and Chinese firms signed deals worth a whopping 13.6 billion dollars on Monday which Beijing indicated could help increase Chinese imports from the deficit-hit United States.

At the conclusion of the meeting Wednesday, the two nations are expected to announce the launch of negotiations for a bilateral investment treaty, which could include enhanced and non-discriminatory market access for investments, more transparent laws, and guarantees of due process for investors.

The last round of talks in December in Beijing established a 10-year general plan to forge energy security between the world's top two polluters and officials expect to emerge with an agreement on implementation details at the talks here.

"On energy and environment, both China and US can find a 'new growth point" for the economic cooperation," Wang said.

The two countries are net importers of oil, but are not part of the Kyoto Protocol which limits emissions.