Roy Ho’s Blog

Senate Banking Committee Chairman Chris Dodd (D-Conn.) yesterday said that his panel on Thursday will consider a draft housing bill that would allow the Federal Housing Administration to insure up to $300 billion in refinanced mortgages, and create a new regulator for Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Under the legislation, lenders would, among other things, volunteer to substantially reduce the amount of the original mortgage note. In exchange, the FHA would insure a new loan at a 30-year fixed rate that the borrower could afford. The House last week passed a housing package with some similar measures.

This is not the version of Treasury Secretary Henry Paulson. 

This plan is more consumer-centric than that of Henry Paulson, although improvements can still be made.  For instance, the mortgage write-down has to be initiated by the lender in this version.  For that reason, the lenders have the strongest incentive to unload the riskiest mortgages first.  However, the riskiest mortgages may not be the neediest. 

This riskiness may be perceived as loan by asset.  The lender may also see that as mortgage payment by burrower’s income.  However, the most desperate burrowers usually would see the need as payment by income.

Burrower’s consent is not needed.  The house has to be owner occupied.  The gov’t will also own part of the house’s equity (proceed upon sale).

Bush has threatened veto this legislation.

The text can be found in the Banking panel of the Senate website.

Forbes published a few articles related to patent laws that are English friendly in the last 10 weeks.  The patent universe is likely to change very soon.  And Rumsfeld probably would not like this idea. 

The legislature has been considering patent laws reforms for the past few years.  The pressure of this reform comes from major corporations, which hold a lot of patents, have been getting sued by patent trolls, or patent speculators, for royalty fees.  Additional royalty fees of course cuts into the profit margin.  However, intellectual property suits are costly to fight simply they are so difficult to understand (and thus higher legal fees).  

For some industries, intellectual property (IP) lawsuits affect the legal fees and royalty fees.  However, for some industries, these lawsuits affect their capitalization the suit hits the news.  These are the IP-centric industries, such as IT and medical industries.  

When RIM, the maker of blackberry, got sued for patent infringement, its stock price dropped to its knees.  After all, RIM has nothing but blackberry.  And even if RIM’s patent is not void, a heavy royalty fees will seriously affect its profit.  

A key element of the reform is revolved around unique concept of American patent system: first to invent versus first to file.  The congress will remove the first to invent rule and make US to be in sync with the rest of world: first to file.  In the first to file rule, one needs not be an inventor, but just to be the first to walk into the patent office to own all rights of the invention.  

The first one to be disadvantaged is obviously the legal industry.  However, not many people will feel sorry for that.  And we will skip.

A loss to one may be a gain to another.  Here are some of those:

The second to be affected (not necessarily disadvantaged) are the medical and IT industries.  A lot of drug patents are expiring, just like the copy rights of a lot of Disney characters.  For these US giant pharmaceuticals to stay afloat, they need new patents.  They either have to invent or find other people’s invention to file before the inventor does.  So, the firms that are better industrial espionage will do better.  

Some items are affecting directly the rights of the inventor: 1) Damages will be restricted as well, a classic republican cause; 2) Challenges will be for the entire life span of the patent rather than a probation period; 3) Disclosure of invention will be required prior to granting the patent. 

Who gets the benefit out of this?  Infringers.  Infringers will be able to have a cap on the compensation to the patent owners, able to challenge the patent until the patent runs out (yes, they can), able to learn the invention before it is patented and therefore free from paying royalties fees, and no injections from the inventor to stop the infringements. 

Alright, how does it relate to Rumsfeld? 

As a defense hawk, Rumesfeld is interested at slowing the China’s economic growth.  Making it cheaper for patent violation is a big favour for the medium enterprises in China.  Inventors lobby groups probably would want to get more funding from pharmaceuticals and hire Rumsfeld to be the lobbyist for a cause that its core constituents probably does not have the funding nor the votes for.

There are reasons for both house and senate not to do anything with Bush in regard to recession (or anything else, like treaty ratification) for their personal and political gains.  However, such a delay may not be a bad thing for the country.  

A new president will be mandated by November, almost down to 6 months now.  A new administration will start operation by next January, 9 months away.  So, the good reason for not doing anything with Bush is: if legislations are passed now, then it will be the new administration that has to execute them, what if these legislations will completely contradict to the new administration’s mandate?  Is this legislative prescribing “solutions” that are going to be doomed? Or even worse sour the relationship with the new president?  

And if these legislations turned out to be successful, guess what, the outgoing president will definitely claim to be his credit years from now in his memoir just as the same time the new president will claim to be his credit.  Will any new president like such a trap?  How can any well intended legislator purposefully set such a political trap up for the new president to step on?  

We know there is no solution that would be “the only” solution.  Creating grand standing solutions right now requires an unquestionable monolithic ideological conviction that says this is the only solution to the problem.  The worse is this conviction can be misinterpreted as: arrogance. 

How can the legislators trust the new administration to execute these solutions faithfully when they just push them down the new administration’s throat?  Therefore, the delay tactic is not only for the gain of the legislature as a whole as well as individuals, but also prudent for the nation.  

Bush is complaining the Congress is delaying his every effort to get us out of recession, CNN reports.

What does he expect?  He is about to go.  Who would want to send him legacy legislations?  

Everyone should be in a transition mode and see what solutions will better fit the direction the next President will want to take.  After all, there is never one solution.  So, any legislator would think “why not wait and see?”

Any real meaningful legislation will require work from both House and Senate.  Every Joe, Dick and Harry will want to add his stamp, his pet project, pet cause, pet donor’s wishes to the legislation.  And it is much better to trade favours with a new president than an out-going president.  

All possible outcomes from this congress are items that are fiscally inexpensive and good for TV items.  This mortgage crisis cheque is a good example.  Everyone gets a few hundred bucks.  It is good for re-election.  And if the problem persists to 2009 January, then there is something the legislators can trade with the new president.  

This is just a blamemanship game. 

The political solutions usually cannot do a dent in a short run.  The effects of government fiscal policies and programs usually do not affect the economy in a matter of months.  These interventions affect the market set up and their effects are measured in years and decades.

Short term interventions require government’s active participation in the market (be it real estate or stock market or whatever else).  This kind of short term interventions are effective only when the action 1) is rare and 2) is taken shiftly.

Interest rate fluctuation is the first type, however the Fed can affect only the interest rate aspect of the economy. And that is not the solution for everything.

Shiftly is a time element.  The reaction has to be quick.  Such a quick action can only be carried out by an undemocratic institution, like the Fed.  And China’s interventions are effective because they are undemocratic.  They can shut down all stock transactions to serve whatever the political purpose is.  But we live in a democracy with freedom, right?

Some environmentalists are embracing the more expensive gas as the way to push for a greener America.  And we are now getting close to USD$120/barrel, after CNN reports a strike in UK’s North Sea. 

We all know that there is very little difference between Obama and Clinton in terms of green policies.  We also know that McCain has risked a lot more of his political capital against his Republican Party than Obama and Clinton have risked against their Democratic Party.  Ever since Bush announced his own plan, the differences among green policies in the country is getting narrower.  However, has anyone actually explained anything other than recycling and driving less?

Climate change is becoming an inevitable issue in the United States as it takes more and more media space as well as more and more votes from opinion polls.  Some government intervention will eventually occur.  How will these actions affect our life styles?  And it is more than gas prices or recycling.  How will it affect our consumption? Land prices? Zoning? And one may ask: “how are they related in the first place?”

Cost of transportation from your house to your job may not be that much.  However, the cost of transportation factors into everything in your household.  All this cost essentially is dependent on the distance between your residence to a national major transportation node.  Now, we are looking at a fraction of all your after tax income as transportation cost.  At the aggregate level, companies move ever closer to national transportation nodes.  This in turn encourages higher density, nationally. 

People are demanding more and more “walkable communities”. People are demanding more green space to produce more oxygen production, more farm land and everything else natural.  Governments and voters will eventually find out that the most effective way to conduct business is to revitalize downtowns everywhere.  That is equivalent to increase density. 

Instead of creating layers and layers of enforcement agency, chaotic laws that benefit no one but compliance lawyers auditing firms, governments may eventually consider turning to some economic or organic ways to increase density in order to minimize the eradication of green space and farm land.  If fiscal policy is to achieve this goal, then it will turn to some modification of property tax. 

Most of the property tax in North America is calculated based on two parts: the value of the property and the value of the land.  Very often, more than 2/3 of your property tax is derived from the value of property rather than the land.  This taxing philosophy prevents the most innovative use of the most expensive resources (land) in a city.  As a result, no land developer sees the value in having more retail space, having more office space, more residential space on the same piece of land. 

Values of properties in downtowns have little to do with the properties themselves but more to do with the land, i.e. location.  A tax philosophy that encourages efficiency of resources would place tax more on the value of land.  In such a scheme, the most profit would be extracted based on the value of the land rather than the property.  This encourages having the best property on a given piece of land rather than having the least cost to have a property on a valuable land.  Two storeys buildings in a downtown of a metropolitan of a 1 million would then become uneconomical.  It would only encourage a speculator or a developer to develop a high rise to make use of this most valuable land. 

Therefore, if your house happens to be in a big metropolitan, green politics will eventually make your wallet to realize the value of your house’s location.  Saving on your property tax bill may encourage you to sell your house.  Comparing house value based versus a land value based property tax scheme, one may argue that suburban residents and country residents have been subsidizing downtown residents through property tax.

How so?

Land prices in country vary not as much as cities.  Lands in cities vary the most in downtown area.  A 100 by 100 feet parcel of land in a downtown can easily fetch the same value of an acre in the country although the properties on top of the land are the same. 

The high expense of gasoline is effective in making people aware of their consumption choices.  However, letting the location of a residence to be swayed by gasoline price is difficult to be justified for a lot of families.  And since downtown land owners will prefer their continual land squatting for the next perfect sale opportunity, such a property tax modification may speed up the progress.

Therefore, having a property tax based on land value actually would serve country voters much more favourably than the suburbs’ and more for the suburbs’ than the urban areas’.  At the end, having such a green fiscal policy actually brings more benefit to the Republican voter base then Democrat voter base.  You would think voters make rational choices.

However, the conventional wisdom

In fact, a property tax scheme that is completely focused on the value of land or just the sale price of the property and land will eventually make land speculation more expensive, land development more expensive, building them require more engineering sophistication. 

Therefore, no one would want to squat on a piece of downtown land for decades without either developing it himself or selling it to a developer since the tax would serve as a good indicator to the owner how much value the land could possibly worth. 

Such a scenario will moderate urban sprawling depending on the proportion of land value in the property tax.  Downtown land owners will be the most immediate beneficiaries.  The land owners in the fringes of the city also see benefit.  The grumpiest of all the land owners will be the ones who have been expecting urban development in the future 10 years on their land but now an unforeseeable eternity. 

Land development is a hair splitting business.  A few basis points in the business loan will make or break the deal.  In this green scenario, since land becomes even more expensive and a higher density is very much needed to become profitable,

Downtowns in the states have been in decades of decline.  This is only partly due to the white flight.  A big portion of incentive has been due to the government unintentionally induced incentives for land squatting.  In other words:  a big portion of disincentive for innovative and cost effective use of land has been unintentionally created by governments all over the country. 

Being green is about having the least “economical footprint”.  In the words of economics, it is about being “cost effective”, “consuming” the least resources.  Currently, not all the costs are being factored into the environmentally wasteful products and therefore we are consuming at a cost that is far below the recovery cost of our consumption causing to the environment.  Fixing the environment requires money, just like anything else. 

Suppose the government finances the fix from levying a tax on gasoline.  Gas consumption goes down while demand for public transportation goes up.  Automobile manufacturers will have to create more energy efficient cars for the market.  But that is not the end of it.  This change of transportation habit is only a facet of the high expense of natural resources. 

There are many social injustices that require rectification.  Climate change is only one of them.  The difference is urgency, or priority.  If there is money to be made, there is a way for many willing change agent who will work on the cause.  For instance, Walmart is taking a serious effort into greening itself. 

If that is not possible, there are charities.  However, no one can fund a non-profitable cause with as much resources as a government can since government takes taxes off everyone to finance the actions. 

Carter says Hamas is ready.  Why is Hamas “ready for peace” all of a sudden?  What does it mean to us?  Carter’s full transcript is here:

http://abcnews.go.com/print?id=4641038

Middle East is a difficult place to negotiate peace.  It is even more difficult between Israel and the rest of the Middle East.  Israel, due to historical baggage or lack of military depth, does not deal with anyone who does not recognize its existence. 

Hamas understands they do not much chips to bargain with since Palestine is small, no resources to fight.  The best they can do is to use their quantity and determination to maximize the damage in order to draw a negotiation.  Their pledge to destroy Israel could be a real commitment among the religious zealots but cannot be taken seriously among the politicians in Hamas. 

The question for Hamas should always have been timing: Are we ready to negotiate?  They could have been ready for a while and we just do not hear much about it.  These are the reasons they could be ready: they are confident they will be able to direct the debate in the next referendum, should a truce be produced with Israel and Abbas; Egypt is pushing toward an end game; they have completely digested their political gain from 2006 and military seizure of Gaza.

If peace deal is produced, Hamas would want to defeat it if it is not to the Hamas’ liking.  Given that they are a grass root movement and they had a good election infrastructure proven by 2006 election victory, they should be able to feel that they are the ones who will have the veto power of the next peace process product: a truce. 

Ever since Israel no longer manages the Gaza border with Egypt, this border became open and thus the border management became the responsibility of Egypt.  And it would be difficult for Egypt to say no for people moving in and out of Gaza.  So, this border management issue became a refugee management issue literally.  For Israel, since peace means co-existence, two-state is inevitable.  So, why border with it? Let it be someone’s problem.  And if it became Egypt’s problem, Israel can make the argument that Egypt is failing in the war against terrorism.  Now Egypt may have a greater incentive than before to push for a quicker resolution. 

Hamas would not want to get eat more than they can chew.  They were the underdog; they had to win over Fatah in order to face Israel.  Then they won the election without “representation” internationally.  Now they have a complete control of some territory, they now do not only have some vague concept of militia before the international media, but the military force in Gaza, electoral majority from 2006 election, they can be ready. 

Hamas have a few good chips on their hands: 1) any deal needs democratic affirmation and they had the majority, so their opinion counts; 2) they out gunned everyone in the last battle (Gaza), they are here to stay and no one can get rid of them; 3) the pledge of “destruction of Israel” is on the table for negotiation. 

For Israel, they know they will always be outnumbered.  Even within Israel the Arab population is the fastest growing population.  Peace cannot come from military might, for it requires an extinction of the enemy.  When Hamas did not have any kind of mandate, Israel could afford not to negotiate to Hamas.  After 2006, it would be a difficult proposition.  Both sides needed a proper stage to facilitate en entry. 

Carter may want to project this issue in the election.  If Bush really wants to accomplish something like he said he was going to try, he could use this opportunity.  Israel would want to wait and see who the next president is to formulate their next course of action.  2008 is unlikely to be the year for this kind of breakthrough. 

The most important thing is Hamas will recognize a referendum.  Hamas refusal to recognizing Israel will be dropped if the populace takes peace and precedence.  Hamas cannot recognize Israel without a price.

Zimbabwe got a new twist.  CNN reports Mugabe decides not to atten the submit to be held in Zambia, its neighbour.  However, the opposition (Tsvangirai) is attending.  This will give the Tsvangiraia great opportunity to sell his plan of stabilization and strengthens Tsvangirai’s edge both internationally as well as domestically. 

The instability in Zimbabwe affects copper’s prices.  However, the copper price has been receding from its historical high.  This Zimbabwe episode will provide a support price level to copper.  So, this price will probably slow down.

Further down, Sino Union Petro & Chemical secured an oil field with Madagascar, expected to be worth 2B barrels.  China will own 50% of the venture. 

Chinese oil exploration firms have been trying to secure sites overseas with little success.  This is a firt major break not only for them, but also to Madagascar as well.  Madagascar has not produced oil for 60 years, reports Reuters! 

This company is not traded in LSE nor NY.  It is traded in HK only. 

This will also strench India’s resources as well.  Although India is not in as an urgent need as China in terms of resources.  Over the years, China is slowly moving in East Africa (more so than Africa in general), the traditinoally perceived sphere of influence by India.  Not that India has navy bases all over the place, but it has a lot of migrants and control a big portion of trade in East Africa.  It will only be a matter of time for India to express its security concern not only about the Himalaya border and Parkistan, but also about pan India Ocean security issues with China.  These oil exploration companies will have to learn that getting listed in London and NY helps them mitigate political risks.

For India, issues such as Kenya and Zimbabwe will have to become the leverage points for it to enter the stage.  It is probably too late for this episode.  But next time.

Wall Street reports (print version) that Zambia President and SADC Chairman Levy Mwanawasa invited 15 South African countries for a submit on the Zimbabwean crisis.  How does Zimbabwe affect your $$?  Kenya is having their problems too.  Zimbabwe itself does not cause that much of a problem.  When the political instability gets Zimbabwe’s neighbour Zambia nervous, then it will affect your $$.  And how does Kenya play into this?  Well, most of the copper from central Africa are mined from land locked countries.  And they, just happen so, export through Kenya.

http://edition.cnn.com/2008/WORLD/africa/04/10/zimbabwe.election/index.html

Zambia and Zimbabwe shares a long border.  Zambia and Kenya also share a long border.  Zambia would get nervous because it sees a refugee crisis down the road.  And that is where the problem begins.  Zambia is still a major producer of copper.  This Zimbabwean political instability may create political instability in Zambia as well.  This will drive up the prices of copper.  Kenya may not create a refugee problem.  However, the seaports may not be working and we will get a real back log on copper.  That can be the same story as oil having its backlog created by Katrina, just a copper version of it.  And from there goes into your alloy producers, manufacturing, construction tools, …

Copper prices have been falling lately (as in days).  However, copper is around the historical highs (2008.04.09’s LMX cash ~8650/MT vs. 2006.05’s LMX cash ~8800/MT).

Who is the biggest buyer of copper right now? You got it right: China and India.  And they are importing for their infrastructure needs.

In addition, this Zimbabwe will increase pressure to push up inflation.  And the inflation effect may not be a cascading effect by imports.  If the Chicago market recognizes this risk quickly, the price level may get worked into it fairly quickly.  That affects the bonds market right away.  And any movement in bonds affects stocks of FIs.  

This may lead people to think about the exchange rate of US dollars.  The exchange rate of US is not affected much by this crisis.  The US exchange may be experiencing some psychological sell off due to US’ recent fall against Chinese Yuan.  US has fallen across the psychological barrier of 1US vs. 7Yuan, read Forbes’ story here.  

Wall Street reports (print version) that Zambia President and SADC Chairman Levy Mwanawasa invited 15 South African countries for a submit on the Zimbabwean crisis.  How does Zimbabwe affect your $$?  Zimbabwe itself does not cause that much of a problem.  When the political instability gets Zimbabwe’s neighbour Zambia nervous, then it will affect your $$.  

http://inthefield.blogs.cnn.com/2008/04/10/a-crisis-measured-in-hunger/

http://edition.cnn.com/2008/WORLD/africa/04/10/zimbabwe.election/index.html

Zambia and Zimbabwe shares a long border.  Zambia would get nervous because it sees a refugee crisis down the road.  And that is where the problem begins.  Zambia is still a major producer of copper.  This Zimbabwean political instability may create political instability in Zambia as well.  This will drive up the prices of copper.  And from there goes into your alloy producers, manufacturing, construction tools, …

Copper prices have been falling lately (as in days).  However, copper is around the historical highs (2008.04.09’s LMX cash ~8650/MT vs. 2006.05’s LMX cash ~8800/MT).

In addition, this Zimbabwe will increase pressure to push up inflation.  And the inflation effect may not be a cascading effect by imports.  If the Chicago market recognizes this risk quickly, the price level may get worked into it fairly quickly.  That affects the bonds market right away.  And any movement in bonds affects stocks of FIs.  

This may lead people to think about the exchange rate of US dollars.  The exchange rate of US is not affected much by this crisis.  The US exchange may be experiencing some psychological sell off due to US’ recent fall against Chinese Yuan.  US has fallen across the psychological barrier of 1US vs. 7Yuan, read Forbes’ story here.  

AP reports the political story as follows:

The opposition party said Thursday it will not participate in a presidential runoff, while spokesmen for President Robert Mugabe and his chief rival said both will attend an emergency summit of southern African leaders this weekend.

The Movement for Democratic Change says its candidate, Morgan Tsvangirai, won the March 29 vote outright, and has accused Mugabe of delaying the results to give ruling party militants time to intimidate voters and ensure he wins a second round.

On Thursday, the opposition leadership met and resolved not to participate in any runoff presidential vote.

“We won the presidential election hands down, without the need for a runoff,” MDC Secretary-General Tendai Biti told reporters at a news conference in neighboring South Africa. Party leaders had previously said they would not accept a second round, but the party had not taken a formal stance.

Deputy Information Minister Bright Matonga told CNN he believed opposition politicians would be “cowards” if they did not contest a runoff.

“They should come, they should face the music,” he said.

Twelve days after the vote, the results from the presidential race have not been released. The High Court will decide Monday whether to grant an opposition request for release of the election results.

Zambian President Levy Mwanawasa has called an emergency summit of the Southern African Development Community for Saturday to discuss the crisis.

“Such meetings are usually very healthy so heads of state can brief each other, not only us in Zimbabwe,” Zimbabwean Information Minister Sikhanyiso Ndlovu told The Associated Press.

But he insisted the meeting wasn’t necessary. “There is no crisis in Zimbabwe that warrants a special meeting on Zimbabwe,” he said.

Mwanawasa originally planned to send a delegation of former heads of state to Zimbabwe but decided to hold an urgent summit instead, Zambian state radio reported.

Matonga confirmed that Mugabe would attend. “If there is a SADC meeting of heads of state, then obviously he will attend,” he told the AP.

Tsvangirai also will attend the summit, MDC spokesman Nqobizitha Mlilo said, calling him a “head of state.” Biti said the party would press SADC to urge Mugabe to step down.

Tsvangirai, who was traveling throughout the region to ask Mugabe’s peers to push him to end the standoff, was headed Thursday to South Africa to meet with President Thabo Mbeki, Mlilo said.

“If Mr. Tsvangirai is in town and before the president leaves for the next meeting and his program allows it, it is important to hear what Mr. Tsvangirai has to say,” said Aziz Pahad, South Africa’s deputy foreign affairs minister.

African leaders previously deferred to Mbeki and his strategy of “quiet diplomacy” on dealing with Zimbabwe. Mwanawasa has stood out as the only southern African leader to publicly criticize Mugabe’s policies, last year likening the country’s economy to “a sinking Titanic.”

Mugabe has virtually conceded he did not win the election and appears to be campaigning for a runoff by intimidating his foes and fanning racial tensions.

Desmond Mufunde, a newly elected MDC councilman from the rural Gweru district, said soldiers attacked some people in his district last weekend.

Zimbabwe’s Commercial Farmers’ Union accused ruling party supporters of forcing dozens of white farmers off their land and ransacking their homes. Farmers warned that continued chaos could endanger the wheat crop, vital to a nation that has grown deeply dependent on food aid during the worsening economic crisis.

Treasury Secretary Henry Paulson is visiting China.   It is said that he will bring the issue of Tibet to China.  Among other items for discussion are: Chinese tariffs on environmental technology, restriction on financial markets open to foreign competition, the free currency exchange rate of Chinese yuan.  Forbes has a summary:

http://www.forbes.com/markets/feeds/afx/2008/04/02/afx4843254.html

A visit by Treasury is of course arranged way in advance.  So, Tibet is not what prompted the visit.  Neither would Tibet become the main focus at the last minute for a Treasury Secretary.  So, the Tibet talk is for domestic consumption.  Is the appreciation of yuan the point, now that Paulson is actually in China? 

Yuan has already appreciated 4% this year, i.e. 4% in 3 months.  That is quite a bit of appreciation in such a short period of time.  That topic cannot last long.  So, any accomplishment out of this trip would not be in this topic.  And someone like Paulson who has decades of experience in international banking knew that.   

So, what does he want to accomplish here? 

He will put some effort into the environmental technology issue.  However, he is not an expert.  If he has a delegation to go with him, then he will be able to facilitate a lot business card exchanges among the right people.  The irony here is US isn’t really a great leader in this field.  The strength is probably in the capital intensive side of this business, such as wide farms.   

Wang Qishan, the Vice Premier of China managing trades, is the counter part of Paulson.  They met when Paulson, while at Goldman Sachs, helped China restructure one of the big banks.  Therefore, they will be able to spend the most time on opening financial markets to foreign competition.  US’ interests will be on having foreign insurance, investment and banking companies to operate in China while China will say they are not ready yet.  An achievement should not be expected since this ought to be a long term negotiation.  Besides, China is waiting for a new President to deal.  They can also spend some time in the difficulty of conducting M&A in China.  However, if Paulson brings up that issue, then the conversation will easily be dragged into the difficulty of having M&A done in the states by Chinese firms.   

The importance for the US is this is the first trip since the new leadership in February.  So, this is a relationship building trip.  A lot of career bureaucrats of both sides need to find out who their counter parts are.  US’ new Trade counter part will give US less confrontation.  However, by no means negotiations will be easier.  This is a difference in style, not in substance.  Paulson will also gain a lot from this trip.  His Goldman Sachs resume put him to DC.  He paid back to his core constituency by the recent overhaul to make the industry more competitive in the global market place.  Now, his position of power opened even more doors to his post Treasury Secretary career.    

At least someone got something useful of Bush Administration.