updated 12/13/2006 12:36:47 PM ET 2006-12-13T17:36:47

U.S. Treasury Secretary Henry Paulson confronted mixed signals as he arrived in China Wednesday for trade talks, with Beijing announcing a renewed crackdown on pirated goods but also running up a record trade surplus with the United States.

American officials are trying to downplay expectations of breakthroughs from the talks led by Paulson, Washington's point man on economic ties with Beijing, and Chinese Premier Wu Yi. The talks are billed as the start of a wide-ranging “strategic economic dialogue.”

In a prelude to the visit, Chinese and U.S. companies announced a series of deals, including the purchase by U.S. retailer Home Depot Inc. of a chain of Chinese home-improvement stores and the sale of GE Aviation jet engines to a Shanghai airline.

“Commercial engagement built on fair, effective rules is the foundation of the healthy, strong and continually growing trade relationship that we envision between China and the United States,” said Commerce Secretary Carlos Gutierrez, a member of Paulson's delegation, who attended the signing ceremony for the deals.

The anti-piracy campaign announced Wednesday will target producers and distributors of illegally copied movies, music and other goods, the official Xinhua News Agency said. It follows a 100-day-long crackdown launched in July that targeted vendors.

“The campaign will hunt out producers of pirated movies, books and software and break their distribution chains,” Xinhua said, citing the government's anti-piracy agency. “The smuggling of pirating equipment will be severely punished.”

China is believed to be the world's leading source of pirated goods ranging from Hollywood movies to designer clothes, sports equipment and even medicines. American officials say Chinese piracy costs legitimate producers up to $50 billion a year in lost potential sales.

Washington has warned Beijing might face a formal complaint in the World Trade Organization, with the possibility of sanctions, if it fails to stamp out the illicit trade.

Such government campaigns and business deals are frequently announced ahead of U.S.-Chinese meetings as Beijing tries to mollify American critics amid its soaring trade surplus with the United States.

American business groups are pressing for quicker action and have appealed to Paulson to take a hard line with Beijing over its currency controls. They say China's yuan is undervalued, giving the country's exporters an unfair price advantage.

U.S. officials say they also want more Chinese action against piracy and more access to the country's service industries.

Home Depot's president of international operations, Annette Verschuren, would not give a value for the purchase of the 12-store Home Way chain.

GE said its sale of engines to Shanghai Airlines to power new Boeing 787 Dreamliner aircraft was worth $550 million.

Also signed at the ceremony were deals by Oshkosh Truck Corp. to sell U.S.-made airport rescue and firefighting equipment to an airport in eastern China, and a deal between VeriSign and the China Netcom Group and the Ministry of Information and Industry to set up a system to help create domain names.

Despite the complaints about the trade deficit and piracy, the United States has benefited from growing ties with China.

U.S. imports of low-cost Chinese toys, shoes and other goods have held down consumer prices and added to retailers' profits. American companies are seeing growing revenues from operations in China to tap the country's growing consumer market.

China's imports from the United States in the first 11 months this year rose 23 percent over the same period last year to $53.9 billion, according to Vice Commerce Minister Yi Xiaozhun.

He said total U.S. investment in China stands at $121.3 billion.

Paulson is accompanied by Federal Reserve Chairman Ben Bernanke and four other Cabinet members — Commerce's Gutierrez, Energy Secretary Samuel Bodman, Labor Secretary Elaine Chao and Health and Human Services Secretary Mike Leavitt.

U.S. Trade Representative Susan Schwab and the head of the Environmental Protection Agency, Stephen Johnson, also are attending.

On Tuesday, pressure on Washington for action mounted when the Commerce Department reported that the U.S. trade deficit with China rose by 6.1 percent to $24.4 billion.

The U.S. deficit with China is running at an annual rate of $229 billion, far above last year's $202 billion deficit, an all-time high for any country.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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