On realizing that there was no substantial progress to be made on the yuan issue, Paulson showed his experience as a negotiator by turning directly to other subjects - the surge in China's energy consumption and the opening-up of China's financial markets.
In the current global economic situation the surging cost of dollar-denominated energy products outweighs the declining volume of Chinese exports in China's economic development. As a result, an appreciating yuan is obviously beneficial for China's import companies, especially companies like PetroChina, Sinopec and China National Offshore Oil Corp (CNOOC). This is why Paulson chose this route to achieve his goal of a more expensive yuan, a point backed up by the on-going negotiation on bilateral investment agreements.
Paulson’s other point of attack is the allegedly sluggish opening-up of China's financial markets. However, this is not quite the full picture.
China has opened up its entire current account and nearly 60% of its capital account. In the remaining 40% of its capital account, 30% is open within specified limitations, and only 10% is still closed to foreign capital. It seems fair to say that access to China's financial markets is well ahead of schedule. Just before the SED on June 15 China’s Securities Regulatory Commission approved a Credit Suisse application to form a joint venture with Founder Securities, and on June 16 a Securities Broking License was granted to China Euro Securities Ltd (CESL).
However, the Chinese government's efforts still do not appear to live up to the United States' expectations. The US is demanding that China further open up its financial markets, while China wants more focus on other issues such as the weak dollar and volatility in global financial markets. Wang Qishan noted that financial security stability is a priority for China, as opening-up brings both opportunities and risks.
