Despite the positive spin put by the two sides, the two-day summit falls short of expectations. No progress is made on the main issues and the concessions that were made were few and of limited import. If Beijing does not open its economy more to market forces it may not be able to sustain the country’s development.

Washington (AsiaNews/Agencies) – China and the United States reached agreement on lesser issues like financial services and aviation. Although they declared themselves satisfied, especially in terms of mutual trust and working together, the two sides failed to deal with the issue of fully opening China’s economy to market forces remains unresolved.

US Treasury Secretary Henry Paulson said the negotiations had produced “tangible results” even though there is “much more work to do”. Ms Wu, who today will meet President George W. Bush and members of the US Congress, called the two days of top-level talks a “great success” that show the usefulness of “direct consultation and dialogue between us, instead of easy resort to threat or sanctions.”

US securities firms will be able to expand their operations on the mainland to include brokerage, proprietary trading and fund management, but Beijing has decided against lifting caps on foreign ownership of banks, securities firms and insurance companies.

The two sides agreed on a new aviation pact that should double the number of passenger flights between the two countries by 2012, and accepted to work together on alternative energies, but failed to find common ground on food safety. US Secretary of Health and Human Services Michael Leavitt said that US officials told the Beijing delegation that the issue remained a "top concern,” one made more pressing by recent cases of contaminated Chinese food products containing highly toxic ingredients.

The two countries agreed to increase their co-operation in the fight against counterfeit goods and provide greater protection to intellectual property rights.

Secretary Paulson did not mention of progress on achieving a stronger exchange rate for the yuan, but did say that the “real test of flexibility on the yuan is whether it moves on a daily basis and over time.”

Still China rejected calls to let the yuan float freely. In July 2005, when it abandoned the practice of holding the yuan fixed against the dollar it re-valued its currency by 2.1 per cent. But since then it has risen only a further 6 per cent, with some experts contending that it left the currency undervalued by as much as 40 percent.

That's why the US Congress has threatened to impose trade sanctions if China did not allow the yuan to realign itself against the US dollar.

The reason lies in the US trade deficit with China which reached a record US2.5 billion last year.

For Kevin L. Kearns, chairman of the US Business and Industry Council, which represents small and medium-size manufacturing companies, the White House's approach to negotiations with China has been a “failure” and “the ball is [now] clearly in Congress' court.”

Many experts note that Beijing is being asked to review its development model, based on cheap labour and government support for industry. This has meant that in many sectors the lack of competition has led to inflated market values.

Echoing this, former chairman of the US Federal Reserve Alan Greenspan said yesterday that Chinese stock values are too high, raising concerns about a potential “bubble”. In his opinion, “there is going to be a dramatic contraction at some point,” and if Chinese stocks were to collapse, the spill-over could be felt worldwide.

One example where the bubble might burst is the steel industry. China’s steelmaking capacity has reached 591 million tonnes annually. By comparison, total US capacity this year will be about 115 million tonnes.

Increased steel production has pushed up costs for raw materials, lowered steel prices and is taxing the country’s energy and environmental resources.

The situation is such that “China's steel industry [shows it] has no concept of profits and costs, and is only interested in creating jobs," said Daniel Dimicco, chairman of Nucor Corp, the second-largest US steelmaker. “In many product categories it has destroyed pricing.”

Recently, Beijing imposed an export tax of as much as 15 per cent on steel slabs and 10 per cent on steel wire and rods to reduce exports,” but many US experts are not convinced that the new tax will do much to curb overproduction. (PB)

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