Newsweek International 2007-12-16 23:52:19Is Henry Paulson's big China offensive dead in the water? As the U.S. Treasury secretary preps for the next meeting of his widely hyped Strategic Economic Dialogue in Beijing this week, some China watchers are heralding its demise. Paulson left as CEO of Goldman Sachs and took the Treasury post on condition that he'd be America's point man on China, yet so far he's not even meeting the right people. Prime Minister Wen Jiabao declined to lead China's side, shunting the job off to Wu Yi, who will be a lame duck when she meets Paulson this week. Worse, her likely successor is thought to be Zhang Jiang, a provincial party chief who learned his economics at Kim Il Sung University in Pyongyang, hardly a bastion of free-market liberalism. Treasury officials hope Paulson will end up working with Li Keqiang, a highly regarded reformer and rising star in the Communist Party. But it's unlikely anyone on the Chinese side will give much more anyway. The dialogue was supposed to work like this: Beijing would make concessions on hot issues like piracy and the value of the yuan, and Paulson would dampen China bashing from Washington. It hasn't happened, because China was never going to make real concessions to relieve protectionist pressure, which has been rising in Congress and from U.S. presidential candidates anyway. It's not easy to manage a relationship with China when both Democrats and Republicans in the United States are "screaming" about alleged Chinese misdeeds, notes Charles Freeman, a former senior trade official in the Bush administration. Both sides sold each other a phony premise for the talks. A senior U.S. official not cleared to speak by name insists the dialogue has produced major achievements, including a recent air-service agreement and U.S. support for China's membership in the Financial Activity Task Force, an anti-money-laundering agency. Thin gruel, most analysts agree, compared with the expectations for what Paulson, an old China hand, could get done. The United States, burdened by its trade deficit, needs this dialogue more than China does. Paulson's vision that it would become a permanent framework for U.S.-China relations lies in ruins. China is in a strong position, not in a mood to grant favors to itinerant foreigners. (A delegation from the European Union, which went to Beijing last week also seeking a higher price for the yuan, left empty-handed.) It now looks likely that this effort to regulate Sino-American affairs will fade away when Bush leaves office in 2009—just one more misguided effort to "hustle" the East, as Kipling put it.