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Treasury Secretary nominee Henry M. Paulson Jr. testifies during his confirmation hearing on Capitol Hill June 27, 2006 in Washington, DC. - 


SCOTT JAGOW: U.S. Treasury Secretary Hank Paulson arrived in China today. He'll be giving a speech at the Shanghai futures exchange. But he's not there to talk about the stock markets. This is one of his regular visits to China. Joining us now is Scott Tong, our new Asian correspondent. Scott, every time I turn around, Paulson's in China. What's he up to?

SCOTT TONG: Well one reason is just that China's economy just continues to grow and grow. And there is this ongoing conversation, debate, a kind of gnashing of teeth in Washington at times about China's currency and whether that is an unfair trade barrier vis-&agrave-vis the United States. The other point is, Mr. Paulson from his career as an investment banker, he knows a lot about China. And what he has tried to begin is what he calls a strategic economic dialogue with China, which is much wider than just the currency. So he's coming to China to talk about intellectual property and piracy, about Chinese financial markets and how they should open up to new competition.

JAGOW: He sort of seems to be taking a carrot approach and a lot of people in Congress want the U.S. to use a stick, you know, when it comes to China's currency. How long can Paulson hold out with this dialogue strategy?

TONG: People in the business community say the meter's kind of ticking here so Mr. Paulson has to come back with something that appears to be, 'we're making progress.' But at the same time, it's not gonna happen overnight. China is not about to even allow the impression that someone from the outside has pushed it into making economic changes.

JAGOW: Is there any sense that the Chinese are stringing Paulson along here?

TONG: I don't think so, because you might think that having a giant trade surplus is a great thing necessarily for China, but it isn't. With all the foreign currency reserves that China has now, there are worries about overcapacity, sectors getting too much money, too much cash in China.

JAGOW: Scott Tong, our correspondent in Shanghai, thank you.

TONG: OK Scott, thanks.