The Chinese Government is close to dropping tariffs on technologies that increase energy efficiency and decrease pollution in what would be the country’s biggest move towards tackling global warming.

Wu Yi, the Chinese Vice-Premier, is in advanced talks about energy tariffs with Henry Paulson, the US Treasury Secretary, as part of trade negotiations between the countries in Washington this week.

China is expected to agree to eliminate tariffs, some as high as 16 per cent, on technology hardware and energy services as it seeks to increase the efficiency of its power-generating plants and, in turn, reduce the production of harmful emissions.

Daniel Rosen, principal of China Strategic Advisory, a consultancy, said: “This would be a symbolically very important move because it would be the first time that energy efficiency and the environment have been tackled in an integrated manner. The best way to reduce sulphur emissions is to use less energy, while a reduction in the use of steel to build plants reduces the energy needed to build them, which is good for the environment.

“This is the first time these issues have become a front-runner at Cabinet level and [this] is a harbinger of policy cooperation to come.”

The agreement, which sources said could fall through at the last minute, would also be seen as a sop by China to American hostility as it continues to keep the value of the yuan artificially low. This is making China’s imports more attractive and is fuelling America’s growing trade deficit with the country, which jumped to $232.6 billion (£117.7 billion) last year, the highest registered with a single nation.

The US Congress is threatening to impose tariffs on Chinese imports unless it significantly revalues the yuan, which it believes is undervalued by about 35 per cent because the Chinese Government has worked to keep it artificially low.

The yuan was among the top items on the agenda as Mr Paulson welcomed Ms Wu and 14 Chinese Cabinet members this week for the second round of the so-called strategic economic dialogue, which the US Treasury launched last year in an attempt to calm trade tensions between the countries.

Opening the discussions, Mr Paulson, a former chief executive of Goldman Sachs with numerous high-level contacts in China, said that the US was impatiently waiting for the Chinese to take significant action to cut its trade deficits. But Ms Yi said that she would not be held hostage to American pressure.

Mr Paulson said: “There is growing scepticism in each country about the other’s intentions. Unfortunately, in America this is manifesting itself as antiChina sentiment as China becomes a symbol of the real and imagined downside of global competition.”

This week, China has promised to boost exports on some steel tariffs while imposing new duties on other items from next month to narrow its widening trade surplus with the rest of the world, which jumped by 88 per cent to $63 billion in the first quarter.

However, analysts question whether these measures will be sufficient to dissuade American politicians from pressing ahead with their threatened tariffs. America’s trade deficit rose to $765.27 billion in 2006, an all-time high for the fifth consecutive year.

Ms Wu’s delegation team includes Jin Renqing, the Chinese Finance Minister, and Zhou Xiaochuan, the Governor of its central bank. Mr Paulson’s delegation included Ben Bernanke, Chairman of the US Federal Reserve, and top officials from 11 American Cabinet-level agencies.

Numbers game

$233.3bn
China’s trade surplus with the United States last year

$207.3bn
Total Chinese trade surplus in the 12 months to April last year, up 82 per cent from a year earlier

$249.9bn
China’s current account surplus in 2006, up 5 per cent from the previous year – equivalent to 9.5 per cent of GDP

$400bn
Forecast by Standard Chartered bank of China’s current account surplus this year – equivalent to 12.8 per cent of GDP

$22.7bn
Value of US imports from China in one month alone (March 2007)

Source: Reuters; census.gov

On the agenda?

— China’s reluctance to significantly revalue the yuan and America’s threat to introduce hefty tariffs on Chinese imports Possible collaboration on “clean coal” initiatives as part of a broader drive to combat global warming

— The possibility of China increasing the percentage ownership of its banks by foreign companies. A single foreign company cannot own more than 19.9 per cent, while a consortium’s stake is capped at 24.9 per cent

— Food safety, highlighted by the recent deaths of American pets after eating food contaminated with a Chinese-made ingredient

— The elimination of tariffs on energy services and technologies

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