Baptism of fire awaits Jack Lew in China

The US Treasury Secretary has a list of difficult issues to address as he arrives in Beijing for his first foreign trip
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The Independent Online

Jack Lew, America's new Treasury Secretary, has a long record of dealing with domestic economic affairs, having been the budget point-man for both presidents Barack Obama and Bill Clinton. But compared to his recent predecessors in the job, he is a newbie on the world stage. Tim Geithner was a Treasury Undersecretary for International Affairs in the second Clintonadministration, while Hank Paulson, as chief executive of Goldman Sachs, visited China about 70 times before being appointed by George Bush in 2006.

Luckily for Mr Lew, who will be in China today for his first foreign trip as the president's top economic adviser, he arrives just as a new set of leaders assumes the reins of the world's second-largest economy.

He has been at the US Treasury since late February, while Xi Jinping and Li Keqiang formally took over their new posts as China's president and premier last week. The same is true of the country's new finance minister, Lou Jiwei.

"They have a new government that's in place now. We have many new people in our government," Mr Lew said last week. "It's important we engage immediately on a broad range of issues."

He is likely to more specific in his meetings, which conclude tomorrow.Here is a summary of the key issues:

American businesses, particularly in the technology sector, have long complained of losing out on valuable revenues because of piracy and the rampant flouting of copyright norms in China.

Last year, the issue came to the fore in the US presidential election, when the Republican candidate, Mitt Romney, accused the country of stealing the work of American companies.

"There's even a counterfeit Apple store in China selling counterfeit goods," he said in October.

In December, Chinese trade negotiators assured their US counterparts that the country would do more to protect intellectual property of foreign companies and thus foster a level playing field inside its country.

Mr Lew is expected to bring up the concerns again, as he also seeks greater market access for US companies.

The topic has already come up with the new leadership, with President Obama raising the issue during a congratulatory phone call to his new Chinese counterpart, Xi Jinping, last week.

Almost exactly a month ago, a private security firm in the US released a detailed report on the recent spate of cyber attacks on American businesses and media organisations, linking the apparent attempts at digital espionage to an arm of the Chinese military.

While Beijing has consistently denied any link, the US National Security advisor, Tom Donilon, officially pointed the finger of blame at China last week, when he said: "Increasingly, US businesses are speaking out about their serious concerns about sophisticated, targeted theft of confidential business information and proprietary technologies through cyber intrusions emanating from China."

Given its national security and economic implications, the issue of cyber espionage is thus expected to be at the top of Mr Lew's agenda, as he seeks assurances from the new leaders that they will crack down on the attacks.

But recent comments from Beijing don't augur well for Mr Lew. Li Keqiang, the new Chinese premier, has already batted away the accusations, saying: "I think we should not make groundless accusations against each other."

In the past, the US has been vocal about its concern that China was keeping the value of the yuan artificially low to benefit its companies in the international marketplace, hitting American industry and jobs.

While the issue is likely to come up in Mr Lew's meetings – during his Senate confirmation hearings, he said that China's exchange rate would be among his top priorities – tensions have eased recently as the yuan has appreciated.

Over the last two to three years, China's exchange rate has climbed by about 16 per cent against the US dollar, while China's global-trade surplus has dropped. And although imports from China hit a record level last year, the volume of goods travelling the other direction also climbed.

Moreover, the US Treasury chief risks being criticized by the other side if he puts too much emphasis on the value of the Chinese currency, as many countries blame the loose monetary policy regime within the US for keeping a lid on the value of the dollar.