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TheStreet Open House

Paulson Goes to China

BEIJING -- Expectations are running high in China for the arrival of U.S. Treasury Secretary Henry "Hank" Paulson on Tuesday.

Steeped in the vernacular of capital markets, the former chairman and CEO of Goldman Sachs has also cultivated an avid interest in the Middle Kingdom. Paulson famously racked up 70 trips to China while presiding over Goldman's expansion here.

For both reasons, Paulson brings an unusual degree of credibility to a thankless task: pressing the Bush administration's case to allow faster appreciation of the yuan.

"I think Paulson's biggest job is not convincing China to revalue, it's convincing the White House that their position is wrong," says John Rutledge, a RealMoney.com contributor and chairman of Rutledge Capital, a Greenwich, Conn.-based private equity investment firm.

He calls the administration's position "90% politics and 10% economics," adding that a revaluation "could inadvertently destabilize the Chinese economy."

Nonetheless, election-minded U.S. lawmakers have been squawking that an undervalued yuan is to blame for a surge of cheap Chinese exports which, they claim, are costing American jobs. Just this August, China posted a record $18.8 billion trade surplus while the U.S. posted a record $68.8 billion trade deficit.

Yet Beijing, anxious to nurture China's own economic growth, has lately turned a deaf ear to calls for a yuan revaluation.

On July 21, 2005, Beijing allowed a 2% rise in the value of the Chinese currency relative to the dollar.

But since then China has repeatedly ignored foreign hectoring for further revaluations. The currency has ticked up by only another 2% in the ensuing year.

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