Paulson Urges China to Continue Reforms

BEIJING (AP) — Treasury Secretary Henry M. Paulson Jr. urged Chinese leaders on Wednesday to press ahead with financial market reforms, but acknowledged the American credit crisis might make them hesitant.

Henry M. Paulson Jr., left, told President Hu Jintao of China that there would be “bumps in the road” in fixing the credit crisis.

Mr. Paulson met with President Hu Jintao and Beijing’s new economic planner, Wang Qishan. Mr. Paulson said he assured them that Washington was resolving its credit crisis but cautioned that it was not finished and there would be “more bumps in the road.”

“There is no doubt that what is happening in the U.S. markets clearly has to give the Chinese pause,” Mr. Paulson told reporters.

Mr. Paulson, who was in Beijing as part of an American-Chinese dialogue on trade and other controversial issues, said the sides discussed financial reform, though he declined to say what Chinese officials said.

Mr. Paulson said he acknowledged to Mr. Hu the “very material progress” Beijing has made in easing exchange rate controls, a demand by the United States and other trading partners, but said Beijing must open its financial markets wider to competition if it wanted to continue to develop.

“They have headed down the path to a market economy, and capital markets are a very powerful force for good,” he said. “Until they have efficient, competitive capital markets, their people will not receive adequate returns on their savings.”

Premier Wen Jiabao, China’s top economic official, declared himself “deeply worried” last month about the market turmoil, the decline of the dollar and the direction of the United States economy.

Chinese banks hold risky American mortgage-backed securities and have set aside reserves to cover losses. Economists have cut growth forecasts for China because of slumping American demand for imports.

Washington’s interest rate cuts have complicated Beijing’s effort to cool its fast-growing economy by raising its own rates.

Economists say that if the gap between rates in the two countries grows too large, it could draw foreign money into China, fueling inflation that is heading toward 12-year highs.

The Treasury secretary is the highest-ranking American official to visit Beijing since violent protests in Tibet and China’s subsequent crackdown, and he said he appealed for a peaceful resolution.

“I expressed our concerns about the violence and urged a peaceful resolution through dialogue,” he said.

Mr. Paulson was in Beijing to prepare for the next meeting in June of the United States-Chinese Strategic Economic Dialogue. The process was begun in 2006 to address tensions over China’s soaring trade surplus and currency controls and to deflect pressure from American critics for punitive action. It has been broadened to include talks on cooperation on energy and the environment.

Mr. Wang first met his counterpart, Mr. Paulson, in the 1980s when the American worked for the Goldman Sachs Group and Mr. Wang was president of China Construction Bank, a major state-owned lender.

Mr. Paulson said he considered Mr. Wang a friend, a relationship that he said would help in making a smooth transition from his predecessor, the retired vice premier, Wu Yi.

“We know each other very well,” he said. “When the inevitable tensions arrive, we can get on the phone and talk.”