China takes U.S. to task on currency, food safety

By Glenn Somerville and Eadie Chen
Wednesday, December 12, 2007; 6:53 AM

XIANGHE, China (Reuters) - An assertive China fended off U.S. pressure over currency policy and food safety on Wednesday and told Washington to put its own house in order rather than blame Beijing for its economic problems.

The jousting, during a high-level "strategic economic dialogue" near Beijing, underscored the growing complexity of a relationship that Treasury Secretary Henry Paulson said was now central to maintaining global economic prosperity.

Paulson, who called the first of two days of talks "lively but friendly," urged China to let its currency rise faster to curb inflation, now at an 11-year high of 6.9 percent.

"China's leaders have voiced concerns about China's macroeconomic stability, in particular mounting inflation, growing asset bubbles and possible overheating. A more flexible exchange rate policy is especially important to China now, given these risks," Paulson said.

China's central bank let the yuan rise as high as 7.3647 per dollar on Wednesday, the strongest level since the currency was unpegged from the dollar in July 2005. The yuan has gained 12.4 percent against the dollar in total since then.

Vice-Commerce Minister Chen Deming dug in his heels against a faster rise, saying China's economy could not afford it.

Turning the tables on the United States, Chen criticized the recent decline in the dollar, which he said was pushing up oil and other resource prices and eroding the value of U.S. assets held by countries such as China.

"What I'm worrying about now is the weakening dollar and its potential impact on global growth," Chen said.


Central bank chief Zhou Xiaochuan also spoke out for a strong dollar and said he was concerned that loose U.S. monetary policy could flood the global economy with cash and buffet China's markets in the process.

The news appearances by Chen, Zhou and others appeared to be an attempt by Beijing to win the battle of public opinion. High-ranking Chinese officials usually keep a lower profile at such conferences.

Vice-Premier Wu Yi , known as China's "Iron Lady," also came out swinging. With several bills wending their way through Congress aimed at getting Beijing to speed up the yuan's rise, she warned Paulson that business ties would be severely undermined if the measures became law.

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