Solid economic compromises on the cards

Beijing is expected to offer some concrete compromises to Washington on currency, trade and intellectual property rights at this weekend's summit between President Hu Jintao and US President George W. Bush to advance economic co-operation.

"With a fast-growing economy in company with ballooning foreign reserves and an increasing trade surplus, China can afford to make some concrete economic compromises and open its markets wider to US investors," said Jin Canrong , associate dean of the School of International Studies at Renmin University.

Professor Jin said he believed the central government would promise further efforts and measures to ease Sino-US tension over China's exchange-rate regime, widespread intellectual property rights infringement on the mainland and its huge trade surplus with the US.

Beijing could, in return, ask Washington to help ensure the supply of energy and other natural resources that China badly needs to fuel its economic growth.

Even before his arrival, Mr Bush, who has ratcheted up the pressure on Beijing to do more to allow the yuan to appreciate, said the trade imbalance between the two countries was bothersome.

He said he planned to discuss his hopes for more currency flexibility in meetings with Mr Hu.

There is mounting sentiment in the US for the Bush administration to get tougher with China on trade. The currency markets have been speculating that the People's Bank of China might announce a further appreciation of the yuan in the near future after a recent remark by central bank governor Zhou Xiaochuan that the Chinese economy was flexible enough to withstand a more freely traded currency. On July 21, the central government ended a decade-old peg to the US dollar and allowed the yuan to appreciate by 2.1 per cent against the greenback.

The pace of change has failed to satisfy US lawmakers, who argue an undervalued currency gives Chinese exporters an unfair advantage.

Zhong Wei , director of the Financial Research Centre at Beijing Normal University, said Mr Zhou's remarks might suggest that the central government was considering some compromise with the US on the issue before or after the Sino-US summit. The central bank would take measures to boost domestic consumption in an effort to narrow its trade surplus because adjustments to the yuan's value would not be enough to fix the problem, Professor Zhong said.

He added that consensus on the matter had been reached by China and the US in a recently concluded annual conference attended by ministers of finance and central bank governors from both sides.

However, both professors said they believed the compromise would be more political than economic because officials on the US administration's financial team had come to realise that many of America's economic problems were of its own making, rather than China's. In August, Federal Reserve chairman Alan Greenspan said it was trade protectionism and bloated budget deficits, not China, that posed the biggest risk to the long-term economic vitality of the US.

"Mr Bush has realised that the US economy and US jobs have more to gain from selling Boeings and software to China than restricting imports of Chinese textile and toy products," Professor Jin said.

He said Bush administration officials were eyeing China's huge potential for the US services industry and would push Beijing hard to open its markets. Professor Zhong said China could represent Mr Bush's last, best chance of reversing the fall in his popularity.

Cao Fengzhi , director of the Finance and Securities Research Centre at Peking University, said any slight revaluation of the yuan would have more of a psychological impact on Sino-US trade than a material one.