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The U.S. government and manufacturing sector have high hopes Treasury Secretary Paulson can pull some weight in China and persuade Beijing to allow more appreciation of the yuan. But currency is not the only item on the agenda. At the start of the first biannual talks among American and Chinese economic policy makers, Sec. Paulson said he's looking for "tangible results" that embrace the open market. USD-CHY-1year-chart-12-12-06 His Chinese counterpart acknowledged the need for currency and economic reforms, but her message emphasized China's gradualist approach, while also mentioning limited U.S. knowledge and misunderstanding of China. Paulson admitted, "It would be quite an amazing process if we had significant tangible results after the first meeting." Other areas Paulson discussed include "transparency, rule of law and property rights." The yuan is now trading at its highest levels against the dollar, but appreciation has been incremental at +3.6% since its peg ended in July '05, compared to the euro's 9.4% increase.
• Sources: U.S. Dept. of Treasury Secretary Paulson's Opening Statement and Introductory Remarks, Bloomberg, NY Times
• Related commentary: The Yuan Dilemma; Stocks, Not Economy Overheating?, China: What to Do with Foreign Reserves At $1 Trillion and Counting?, Investing in China: Rapid GDP Growth Rates Indicate Prosperous Future
• Potentially impacted stocks and ETFs: Home Depot (NYSE:HD), General Electric (NYSE:GE) and Oshkosh Truck (NYSE:OSK) announced deals in China yesterday. ETFs: PowerShares DB G10 Currency Harvest Fund (NYSEARCA:DBV), iShares Lehman Aggregate Bond (NYSEARCA:AGG), iShares Lehman 1-3 Year Treasury Bond (NYSEARCA:SHY), iShares Lehman 7-10 Year Treasury (NYSEARCA:IEF), iShares Lehman 20+ Year Treas Bond (NYSEARCA:TLT), iShares Lehman TIPS Bond (NYSEARCA:TIP)

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Source: Paulson & Co. in China: Much of the Same Rhetoric, But Dialogue Still Meaningful