Iraq faces alarming humanitarian crisis

By David Loyn BBC developing world correspondent

Iraq's people were poor and lacked most of the normal signs of development, even before the fall of Saddam Hussein.

Fewer Iraqis have access to clean water than did under Saddam

Then it was possible to blame the problems of dictatorship and international sanctions, but since the US-led invasion continuing poverty in this oil-rich state has had other causes.

A new report by Oxfam says that the continuing failure to provide even the most basic services to many Iraqis will not only cause continuing suffering, but "serve to further destabilise the country".

Oxfam are unable to work on the ground in Iraq in the way that they would elsewhere, but working with the NGO Co-ordination Committee in Iraq (NCCI), their new survey finds "eight million people in need of emergency aid".

The survey recognises that armed violence is the greatest threat facing Iraqis, but finds a population "increasingly threatened by disease and malnutrition".

Savage divisions

Clear statistical analysis is difficult, but the Oxfam/NCCI report believes that more than two million people are now internally displaced within Iraq, as savage new lines are drawn between communities who were not at war before.

Delivering aid to them provides new challenges to a system that is coping even less well than it did in the year after the war.

Of the four million Iraqis who are registered to receive food assistance, 60% receive it. That is down from 96% in the year after the war.

Fewer people have access to clean water than did under Saddam Hussein, and 80% have no access to effective sanitation, a figure comparable to sub-Saharan Africa.

Most UN agencies have found it difficult to operate in Iraq since the devastating bomb that killed their special representative, Sergio Vieira de Mello, and many of his staff only six months after the invasion.

The invasion itself was not mandated by the UN, but the reconstruction effort has since won more international support and its backing.

Humanitarian needs neglected

The Oxfam/NCCI report finds that the immediate needs of Iraqis are being neglected by international funding, which is targeted at longer term development goals.

These goals will be hard to achieve given the major security challenges.

Oxfam says the world must increase humanitarian assistance to Iraq

The report finds that funding for these longer-term projects went up by almost 1000% in the first two years after the invasion, but, despite the need, immediate humanitarian aid fell by about a half.

The report says that the right of the people of Iraq to humanitarian support "is being neglected".

But, while reminding the international community and the UN of their moral responsibility, it recommends a number of basic steps that the government in Baghdad could take to improve the plight of the people.

Most urgently, the report demands that government assistance should be devolved to local control.

That way, locally accountable bodies could inspect the warehouses and delivery systems for aid.

This report must represent a major challenge both to the international authorities and the Iraqi government, who are both found to be failing their people.

Corruption 'mars Iraq rebuilding'

Reports of widespread fraud and waste of funds in Iraq

The US agency overseeing reconstruction in Iraq has told the BBC that economic mismanagement and corruption there are equivalent to "a second insurgency".

The chief auditor assigned by Congress, Stuart Bowen, said the Iraqi government was failing to take responsibility for projects worth billions of dollars.

Mr Bowen also said his agency was investigating more than 50 fraud cases.

Meanwhile, nearly a third of Iraq's population is in need of emergency aid, a report by Oxfam and Iraqi NGOs says.

The report said the Iraqi government was failing to provide basic essentials such as water, food, sanitation and shelter for up to eight million people.

It warned that the continuing violence was masking a humanitarian crisis that had escalated since the US-led invasion in 2003.

On Monday, six people were killed and at least 12 injured in a car bomb attack in Baghdad. The US military also announced the deaths of three of its soldiers in the western province of Anbar.

'Troubling'

US Special Inspector General for Iraq Reconstruction Stuart Bowen was appointed to audit $44bn (£22bn) allocated since 2003, after reports of widespread fraud and waste.

The agency publishes quarterly reports on the situation, most of which have complained about a serious lack of progress. Monday's report was no different.

Millions of Iraqis have been forced to flee the violence, either to another part of Iraq or abroad - many of those are living in dire poverty Jeremy Hobbs Director of Oxfam International

In an interview with the BBC, Mr Bowen said corruption was endemic and described it as "an enemy of democracy".

He added: "We have performed 95 audits that have found instances of programmatic weakness and waste, and we've got 57 ongoing cases right now, criminal cases, looking at fraud."

Mr Bowen said the transfer of projects to Iraqi government control was "troubling", and expressed concern about delays and cost overruns.

The report gave the example of the Doura power station, rebuilt with tens of millions of US dollars, which fell into disrepair once it was transferred to Iraqi control.

Mr Bowen also said Iraqi ministries were struggling to administer funds.

Last year, Prime Minister Nouri Maliki's government only spent 22% of its budget on vital rebuilding projects, while spending 99% of the allocation for salaries, he said.

He said "a pathway towards potential prosperity" could be found only if oil production was brought up to optimal levels, and security and corruption effectively managed.

'Ruined by war'

The Iraqi parliament has now adjourned until 4 September, despite US calls for it to remain in session and pass already-delayed legislation.

The recess means parliament will reconvene just days before America's top commander in Iraq, Army Gen David Petraeus, reports to Congress on the US troop "surge" strategy.

His assessment will likely provide the backdrop to the next round of war spending.

The BBC's Nicholas Witchell in Baghdad says the report by the UK-based charity and the NGO Co-ordination Committee in Iraq (NCCI) makes alarming reading.

The survey recognises that armed conflict is the greatest problem facing Iraqis, but finds a population "increasingly threatened by disease and malnutrition".

It suggests that 70% of Iraq's 26.5m population are without adequate water supplies, compared to 50% prior to the invasion. Only 20% have access to effective sanitation.

Nearly 30% of children are malnourished, a sharp increase on the situation four years ago. Some 15% of Iraqis regularly cannot afford to eat.

The report also said 92% of Iraq's children suffered from learning problems.

It found that more than two million people have been displaced inside the country, while a further two million have fled to neighbouring countries.

On Thursday, an international conference in Jordan pledged to help the refugees with their difficulties. Oxfam has not operated in Iraq since 2003 for security reasons.

Brown and Bush ponder post-Blair ties

By Paul Reynolds World Affairs correspondent, BBC News website

Gordon Brown: seeking a new US relationship

Gordon Brown's talks with President George W Bush will set a new tone for US-British relations after years of exceptionally warm ties between Mr Bush and the UK former Prime Minister Tony Blair.

The expectation generally is that the UK will continue to be close to the United States but perhaps not quite as close as it was.

The new British leader is an Atlanticist, who knows and likes the US well. He is expected to - and indeed he and Foreign Secretary David Miliband have said he will - continue to advance a foreign policy that is sympathetic towards the US.

But nobody thinks that Gordon Brown is going to find a soulmate in George Bush as Tony Blair did. That relationship was forged in the heat of 9/11 and Iraq.

Iraq...

On the most immediate foreign policy issue to hand, Britain will not undertake a precipitous withdrawal from Iraq. However Mr Brown has spoken of a "new stage" and the signs are that he wants out as soon as possible, as long as that is (or can be presented as being) compatible with the policy of handing over only when the Iraqis can do the job.

And Britain will stay in Afghanistan in a combat role. Indeed, it wants more Nato members to join the fray, as does the United States.

...and Iran

A key issue that might well test the relationship is Iran. A new round of UN sanctions is going to be debated, maybe decided, in September, but what if the Bush administration decides to attack Iran's nuclear facilities in the final 18 months or so of its term of office?

Mr Brown has not ruled out military action - doing so now could undermine the diplomatic and economic pressure currently being applied, it is felt - but most observers think he would not join in if the US went ahead.

Forged in fire: Bush and Blair at Camp David, February 2001

Mr Brown will go to Camp David on Sunday evening for dinner and will stay over into Monday, the White House spokesman Tony Snow has announced.

He will no doubt try to clear up some mixed signals that his government has sent out about how it wants to deal with Washington. For example, the appointment of Mark (now Lord) Malloch Brown as Foreign Office minister - a man who was a leading critic of the Bush administration when he was a senior UN figure - was seen as a deliberate distancing from the US neo-conservatives.

On the other hand, Britain does not really want to get much closer to the European Union, holding firm to its "red lines" in the EU treaty negotiations, one of which is to preserve a national foreign policy. This approach was reflected in the recent row with Russia in the Litvinenko affair, in which London did not reach out for an EU-wide response but trod its own path.

The possibility is that Britain will end up semi-attached to the United States and semi-detached from Europe.

Links to US

The former British ambassador to Washington, Sir Christopher Meyer, was present at Camp David when Tony Blair met George Bush there in February 2001. He dismisses any suggestion that Gordon Brown will want to use Camp David to distance himself significantly from President Bush.

"People have got quite excited about this," he said. "There are thousands of seminars about it but I don't think that it warrants that level of activity. They will not be as close personally, unless some magic strikes, but frankly that does not matter that much.

"There is such an awful lot of stuff in the relationship and while there are variables - personalities, events, and shifts of tone - and sometimes the relationship is not that special, historically since 1945 it goes on regardless.

Rendition differences

One recent example of how the relationship can at times be tense came when a House of Commons committee revealed that Britain had reservations about aspects of the US policy of flying terror suspects around the world but that these were ignored.

It was a reminder that, although the two countries are as close allies as they can realistically be, in the end they can diverge.

"Mr Brown's mixed signals are a classic case of an administration bedding in, with some of the bits not dropping into place," says Sir Christopher.

"As for Iran, I am not sure I see the UK going for military action. There are major military objections. I would be surprised if Britain got involved.

"And in Afghanistan, we need help. How long can we sustain that action?"

Bush and Brown vow co-operation

Mr Bush praised Mr Brown for the UK's battle against terrorism

US President George W Bush and UK PM Gordon Brown have held their first formal talks, renewing pledges to fight terrorism and seek progress in Iraq.

Mr Brown said both nations had duties and responsibilities in Iraq, and that he would seek military advice before announcing any changes in policy.

The pair met at Camp David, near Washington, amid widespread interest about whether they could work together.

The talks also focused on Afghanistan, Darfur, world trade and climate change.

Ahead of the summit there was speculation about whether the Texan president and the Scottish prime minister would find some common ground.

In the event, Mr Bush spoke warmly of the "special relationship" with the UK, describing it as "our most important bilateral relationship" - the same term used by Mr Brown ahead of his trip to the US.

Britain and America's policies on Iraq are in step - for now, at least BBC political editor Nick Robinson

The president said he found Mr Brown a warm, humorous man, far removed from the "dour Scotsman" image sometimes portrayed by the media.

He also paid tribute to Mr Brown's personal strength in overcoming the death of his first child in 2002.

And he joked when he learned that six of Mr Brown's newly-appointed cabinet were under 40 years old, telling the prime minister: "You must be feeling old."

But the BBC's political editor Nick Robinson, at Camp David, says Mr Brown did nothing to return those personal compliments - even referring to their meetings as full and frank, which is normal diplomatic code for an argument.

Iraq debate

On Iraq, Mr Brown said any recommendation on the future role of the UK's 5,500 troops in Iraq could be put to parliament after British MPs return to work in October after a summer break.

That would leave any decision on UK troop levels until after a final report on the US "surge" in Iraq by Mr Bush's commander in Iraq, General David Petraeus.

The consequences of failure would be disaster for Great Britain and the US, something this Prime Minister understands George W Bush US President

Current UK policy in Iraq is to hand over power in Basra province to local Iraqi authorities, following successful handovers in three other southern provinces.

"Our aim, like the United States is, step-by-step, to move control to the Iraqi authorities," Mr Brown said.

Mr Bush then linked the fortunes of both nations to the outcome of events in Iraq.

"The consequences of failure would be disaster for Great Britain and the US, something this prime minister understands," the president said.

'Common struggle'

Mr Brown, who faced a series of attempted bombings in the UK in the days after he assumed office in June, denounced terrorism as a crime, not a cause.

Correspondents say Mr Bush used familiar language, including soaring rhetoric on the subject of good and evil, while Gordon Brown was much more specific, detailing a long list of what the two men had talked about.

However, Mr Brown denied suggestions that his view of terrorism differed greatly from that of Mr Bush.

"We know we are in a common struggle, we know we have to work together, and we know we have to deal with it," he said.

"Today in 2007 we see the challenges are radically different to 10 years ago," Mr Brown added, citing climate change, Africa, and the search for a Middle East peace process as key issues.

He said both men had agreed on the need for tougher sanctions against Iran, and the importance of restarting the Doha round of world trade talks.

Vick’s Co-Defendant Agrees to Plea Deal

One of the men indicted with Michael Vick on federal dogfighting charges pleaded guilty Monday and has agreed to help prosecutors make their case.

Eva Russo/Richmond Times-Dispatch/Associated Press

Tony Taylor agreed to cooperate with federal prosecutors pursuing the dog-fighting case against Falcons' quarterback Michael Vick.

Tony Taylor, a 34-year-old from Hampton, Va., pleaded guilty here in United States District Court to charges of conspiring to travel in interstate commerce in aid of unlawful activities and to sponsoring “a dog in an animal fighting venture.”

Taylor, Vick and two other men, Purnell A. Peace, 35, of Virginia Beach; and Quanis L. Phillips, 28, of Atlanta, pleaded not guilty last week in the case. But as part of his deal, Taylor signed a 13-page statement that confirmed much of what the government asserted in its indictment of the men on July 17.

Taylor outlined his involvement with the others in a dogfighting enterprise known as Bad Newz Kennels, according to the statement. He attested to how he scouted a property for Vick to buy in Smithfield, Va., as the base for the venture and cited numerous examples in which the group bought, trained and sponsored dogs in connection with fighting. He also said they gambled on the fights.

Although the statement said several dogs were killed, it did not say that Vick killed any of them. The statement said Taylor had a falling out with Phillips in 2004 and had not been part of the enterprise since.

The 18-page indictment against the men accuses them in graphic detail of animal cruelty. During a search of Vick’s property in April, 54 pit bulls were recovered, along with a so-called rape stand used to hold dogs in place for mating, an electronic treadmill modified for dogs and bloody carpeting. As part of his agreement with prosecutors, Taylor is expected to give testimony that mirrors his statement.

Since being indicted on charges of sponsoring, gambling on and authorizing acts of cruelty against dogs, Vick has had his football career put in limbo — and in jeopardy. N.F.L. Commissioner Roger Goodell has suspended him indefinitely, Reebok has pulled his Atlanta Falcons jerseys from stores, and Nike has stopped sales of its Vick-branded products.

At a 9 a.m. hearing Monday, Taylor stood with his lawyer, Stephen Ashton Hudgins, before Judge Henry E. Hudson and answered questions about whether he understood the plea agreement.

Taylor responded that he did with brief answers in a deep monotone voice.

He faces up to five years in prison and a $250,000 fine, and is free on bond while awaiting a Dec. 14 sentencing. Because a trial in the case has been scheduled for Nov. 26, the judge and prosecutors will have time to evaluate the extent of Taylor’s cooperation before setting a punishment.

Vick and the others are also free on bond.

Daniel C. Richman, a professor at Columbia Law School and a former assistant United States attorney, described the plea agreement as an important step for the investigation.

“A witness like this is the only way to really get inside information without tracking the crime while it is happening,” Richman said. “This is the government’s way of signaling to the other defendants that it has significant evidence and that they should seriously consider pleading guilty themselves.”

A spokeswoman for the United States attorney’s office in Richmond declined to comment because the investigation was still underway.

Vick’s lawyer, Billy Martin, did not return a telephone call seeking comment.

While leaving the court Monday, Taylor was swarmed by a reporters who peppered him with questions about Vick.

Taylor said nothing as he entered a waiting car and left.

Carl Tobias, a professor at University of Richmond Law School, said the turn of events did not help Vick but that defense lawyers could attempt to discredit Taylor.

“Vick’s lawyer was saying on Thursday that they were going to fight this thing to the end, but just a few days later someone has already pled,” Tobias said. “There is a lot time between now and the trial, and the other defendants could turn as well. But the other three of them may be hanging together. They could go after Taylor’s credibility by citing the falling out as more motivation to turn against them.”

Gates Plans His Leave Amid Great Change

Kevin P. Casey for The New York Times

Microsoft’s founder, Bill Gates, flanked by his designated successors: Craig Mundie, left, head of research and strategy, and Ray Ozzie, top software architect.

y JOHN MARKOFF

Published: July 30, 2007

REDMOND, Wash., July 27 — Microsoft is beset with competition from all sides, unlike any it has seen in decades, and Bill Gates, who co-founded the company 32 years ago, still intends to step away next year as planned.

Multimedia

Kevin P. Casey for The New York Times

Ray Ozzie, right, and Craig Mundie, center, will take over two of Bill Gates’s roles at Microsoft.

But so far, Mr. Gates, Microsoft’s 51-year-old chairman, shows no sign of fading away.

One year into a planned two-year transition, there are few visible cues that Mr. Gates is ready to leave the world’s technology stage to devote his energies principally to the $33 billion foundation he established seven years ago with his wife.

Indeed at the company’s annual financial meeting last week Mr. Gates spoke first, outlining a decade-long agenda, not a mere 12-month outlook.

He described a world in which the widespread availability of broadband networks would reshape computing, giving rise to what he said would be “natural user interfaces” like pen, voice and touch, replacing many functions of keyboards and mice.

Mr. Gates has stayed deeply engaged in the company’s technology strategy. He still frequently participates in high-level strategy planning sessions with Microsoft’s closest partners, like Intel, according to executives who have attended the meetings.

During a wide-ranging interview last week exploring his diminished role at Microsoft, the company’s challenge and its competitors, Mr. Gates insisted that he really has begun stepping back.

“I am in a lucky situation of having way more things that seem interesting to do and very exciting and important, and working with smart people, and highly impactful, way more than a 24-hour day will fit,” Mr. Gates said. To be sure, there is widespread skepticism in the industry about the possibility of Mr. Gates genuinely disengaging. Microsoft’s dominance is being challenged as never before by Google in particular, and Wall Street refuses to believe the company will regain its edge. The company’s stock has largely remained flat since the end of the dot-com era.

“It’s very hard for someone at his age, who has built a company with that much success and with continuing challenges to really walk away,” said David B. Yoffie, a professor at Harvard’s business school. “He will never be a titular leader.”

As he spoke in his office, Mr. Gates was joined by the two Microsoft executives, both veteran technologists, who are succeeding him. Craig Mundie, the chief research and strategy officer, and Ray Ozzie, chief software architect, agreed with Mr. Gates that despite significant industry challenges from all directions, Microsoft is at a perfect historic juncture for Mr. Gates’s departure and the first stage of his withdrawal from Microsoft has been reasonably seamless.

“The weaning process inside the company is inevitable,” said Mr. Mundie, a computer scientist who began his career developing minicomputers and supercomputers before joining Microsoft in 1992.

The greatest danger, according to all three executives, would be if Mr. Gates continues to make decisions while not staying deeply involved. He will remain chairman.

“It can’t be a situation where he’s expected to suddenly, magically come up to speed,” said Mr. Ozzie, a software designer who developed a software collaboration tool called Notes for Lotus and then started Groove Networks, which was acquired by Microsoft in 2005. “You know, did you see the 20 announcements last week that Google did, Yahoo did, Cisco did?”

For his part, Mr. Gates said he planned to remain deeply involved in a few areas indefinitely.

“Other than board meetings, there’s not much in terms of regular meetings,” he said. “It’s much more sitting down a couple hours a month with Craig, sitting down a couple of hours a month with Ray.”

On Thursday, Steven A. Ballmer, who took over the chief executive role from Mr. Gates seven years ago, said the company’s overall performance had never been stronger. Microsoft, he noted, has doubled its revenue and almost doubled its profits in the half decade that he has been at the helm. Despite that growth, the stock price has remained vexingly flat in the period.

Although smooth leadership transitions are infrequent among high tech firms, it appears that Mr. Gates has had the freedom to begin stepping away gracefully because Mr. Ballmer has been largely successful in shouldering the burden of running Microsoft.

Mr. Gates no longer attends senior leadership team meetings, and earlier this month he made what company executives described as a farewell appearance at the annual Microsoft sales force meeting in Orlando, Fla. When Mr. Gates finished his speech to the thousands of sales people at the meeting, they gave him a five-minute standing ovation, underscoring the bond the company still retains with its co-founder, according to a person who attended the event.

But as he cedes Microsoft’s technology leadership to Mr. Mundie and Mr. Ozzie, the company is struggling with a radical transition in the computer industry. Six months ago, Microsoft shipped its long-delayed Windows Vista operating system, and there is widespread belief within the industry that the era of such unwieldy and vast software development projects is coming to an end.

Ubiquitous broadband networks and high speed wireless networks have for the first time given rise to meaningful alternatives to bulky and costly personal computers. In their place are a proliferating collection of smart connected devices that are tied together by a vast array of Internet-based information services based in centralized data centers.

Multimedia

The industry is rushing to “software as a service” models ranging from Salesforce.com, a San Francisco company that sells business contact software delivered via Web browsers, to Apple’s iPhone, which is designed as a classic “thin client,” a computer that requires the Internet for many of its capabilities.

It is a vision that Microsoft itself has at least partially embraced. Microsoft, in contrast, is calling its strategy “software plus services,” an approach that is intended to protect the company’s existing installed base.

During the interview, all three executives indicated that Microsoft is now moving quickly to offer new Internet services for personal computer users. Centralized data storage will make it possible for PC users to gain access to most or all of their information from all of the different types of computers they use, whether they are desktops, laptops or smartphones, and wherever they are located.

During the transition, Mr. Gates has also stayed closely involved in shaping Microsoft’s strategy in the search market where it has been assiduously attempting to catch Google and Yahoo.

“We made all the structural changes we were going to make, and we rode in tandem last year,” said Mr. Mundie. “In the last few months Bill has transitioned to what I start to think of as special project mode.”

If he is stepping away from Microsoft, Mr. Gates has shed none of his trademark combativeness. He rejected the Silicon Valley view that Microsoft has begun to exhibit the same sclerotic signs of middle age that I.B.M. did when it dominated the computer industry, but failed to respond effectively to the challenge of the personal computer.

I.B.M. is no longer at the center of the computer industry, he asserted, for two reasons. First, the industry is now centered on personal computing. “As much as I.B.M. created the I.B.M. PC, it was never their culture, their excellence,” he said. “Their skill sets were never about personal computing.”

Second, the center of gravity in the computer industry has dramatically shifted toward software, he said. “Why do you like your iPod, your iPhone, your Xbox 360, your Google Search?” he said. “The real magic sauce is not the parts that we buy for the Xbox, or the parts that Apple buys for iPhones, it’s the software that goes into it.”

During the interview Mr. Gates rejected the notion that Google could become a successful competitor in the smartphone software market, where Microsoft has about 10 percent market share. The Silicon valley search engine provider has been widely reported to be preparing to enter the cellphone market with its own software and a host of services springing from that software.

Microsoft’s chairman said it was unlikely that Google would be able to make inroads into the Microsoft’s share of market for mobile phone software.

“How many products, of all the Google products that have been introduced, how many of them are profit-making products?” he asked. “They’ve introduced about 30 different products; they have one profit-making product. So, you’re now making a prediction without ever seeing the software that they’re going to have the world’s best phone and it’s going to be free?”

Again, the ability to create compelling software will determine the winners. “The phone is becoming way more software intensive,” he said. “And to be able to say that there’s some challenge for us in the phone market when its becoming software intensive, I don’t see that.”

The new, less central role for Mr. Gates was first formulated more than a year ago at a June 2006 meeting in which the three men worked out how they would divide responsibilities for guiding the technology direction of the $51 billion company, according to Mr. Ozzie, who was a longtime rival of Mr. Gates at companies like Lotus and I.B.M. before joining Microsoft two years ago.

They decided at that meeting that Mr. Mundie and Mr. Ozzie would divide Mr. Gates’s role at the company along three axes. Along one of these lines, Mr. Mundie, who has been described as Microsoft’s “secretary of state” and who is deeply involved in federal government and international policy issues, would take a more public-facing role, while Mr. Ozzie would focus more closely on internal company matters.

In another, Mr. Mundie has tackled the company’s long-range strategic decisions, while Mr. Ozzie has taken over the near-term challenges of weaving together the product development issues. Finally, Mr. Mundie has taken responsibility for software that sits closer to the computer hardware, like the Windows operating system, while Mr. Ozzie has shaped Microsoft’s response to the growing challenge of network software.

“There’s been a very natural shift in the past year where I will engage with a particular software team and Bill will disengage,” said Mr. Ozzie. Mr. Gates insists that his new world of philanthropy will be just as compelling as software has been. “I’ll have also malaria vaccine or tuberculosis vaccine or curriculum in American high schools, which are also things that, at least the way my mind works, I sit there and say, ‘Oh, God! This is so important; this is so solvable,’ ” he said, “You’ve just got to get the guy who understands this, and this new technology will bring these things together.”

Paulson in China for talks on economy, environment

Henry Paulson
©AFP/File - Saul Loeb

BEIJING (AFP) - US Treasury Secretary Henry Paulson arrived in China on Sunday, kicking off a visit aimed at convincing the Asian giant to implement much-needed economic and environmental reforms more quickly.

US diplomats said Paulson was first headed to Xining, the capital of the vast northwestern province of Qinghai, where China has enacted a series of environmental protection initiatives near its largest salt-water lake.

Paulson, who heads to Beijing on Monday, will meet with government officials to discuss the US-China Strategic Economic Dialogue (SED) launched last year.

The forum covers a range of economic and environmental issues, but the issue at the forefront is China's yuan, which is seen by lawmakers in the United States as grossly undervalued.

Paulson's visit comes amid growing pressure to curb the burgeoning US trade deficit with China and moves in the US Congress to punish Beijing for what some say are unfair trade policies.

Last week the Senate Finance Committee overwhelmingly approved a bill requiring the Treasury to identify nations with "fundamentally misaligned" currencies, potentially opening the door to economic sanctions against Beijing.

US lawmakers say the undervalued yuan makes US-bound exports cheaper, thereby fuelling the trade deficit, which hit 232.5 billion dollars last year.

"There is no doubt that China and other nations have been undervaluing their currency to give themselves an advantage," said Republican Senator Lindsey Graham, a member of the committee.

"For too long the game has been rigged against American business."

But Paulson said Friday that lawmakers were sending the wrong message by threatening to punish Beijing.

"We would like to see the Chinese move and show more flexibility," he said.

"The right way to deal with a sovereign nation is not through protectionist actions, but by making the case to them very directly as to why it's in their best interests ... that they proceed with their reforms."

China manages the yuan against a basket of foreign currencies. But it maintains that, after ending the yuan's peg to the US dollar in 2005, its currency has appreciated at a steady pace.

Paulson was due to leave China on Wednesday.