Senior officials from worlds biggest and third biggest
Senior officials from the worlds biggest and third-biggest economies are in Beijing for a Strategic and Economic Dialogue SampED intended to steady their vast and sometimes rocky relationship, which went into a dive earlier this year.
While strains over Taiwan, Tibet and censorship have receded for now, the immense U.S. trade deficit with China remains a sore point that could flare, renewing pressure from Washington for Beijing to loosen the yuans tether to the dollar.
The annual U.S. trade deficit with China fell to 226.8 billion in 2009 from a record 268.0 billion in 2008. But the Obama administration is keen to lift exports and narrow the trade gap, and many members of Congress want President Barack Obama to press China harder over its currency policies.
The United States also worries that Chinas revised proposals to promote homegrown technological innovation may still discriminate against American firms, the U.S. Trade Representative Ron Kirk said on Tuesday.
Any progress from China in intellectual property protection and market access barriers could be more important than its yuan reforms, Kirk told Reuters in an interview on the sidelines of the SampED meetings.
All these could be as valuable, if not more valuable frankly, than whatever we accomplish on the exchange rate, U.S. Trade Representative Ron Kirk told Reuters during a break in high-level talks on foreign policy and economic challenges.
But all of those go to our underlying ability to come in and fairly compete in this market, Kirk added. He emphasized his support for pressing China to move to a more market-oriented currency exchange rate.
China has made a wise choice by buying United States debt but should eventually channel more investment domestically, U.S. Secretary of State Hillary Clinton said on Tuesday in an interview with Chinese state television.
China needs to be investing some of that money that you are probably still investing in the United States or maybe other markets into the internal development and the increasing of internal demand inside China, she said.
China is the worlds largest holder of U.S. Treasuries, with 895.2 billion. Chinese officials, including Premier Wen Jiabao, last year prodded the Obama administration to avoid pursuing fiscal policies that could erode the value of those holdings.
POSITIVE SIGNS FROM HU
Tensions flared between Beijing and Washington in the first months of 2010, when China denounced U.S. criticism of its Internet censorship, Washingtons arms sales to Taiwan, and President Barack Obamas meeting with the Dalai Lama, Tibets exiled leader.
After the stormy start to the year neither side appears willing to risk worrying markets with renewed feuding, and the talks have swaddled the hard problems between them in soft words.
On Monday, U.S. Secretary of State Clinton urged Beijing to get behind international condemnation of North Korea, which South Korea has said torpedoed its warship, the Cheonan, in late March, killing 46 sailors.
The U.S. Treasury Secretary Timothy Geithner nudged China to move on the yuan, which the Obama administration says is held too low against the dollar, disadvantaging U.S. producers and distorting global trade flows.
In public at least, China has given no real ground on either of these top issues. But Chinese President Hu Jintao indicated that he appreciated Washingtons quieter approach on the yuan.
Hu told the assembled Chinese and U.S. officials on Monday that his government wanted to boost domestic demand and would reform its yuan exchange rate rulesbut carefully and at a time of its own choosing.
Trading in one-year non-deliverable dollar/yuan forwards marked their biggest single day rise in 15 months on Tuesday, as the dollar strengthened globally amid concerns about the euro. That pushed down the implied 12-month yuan appreciation to only 1 percent from 1.60 percent at the close on Monday.
In April, Geithner delayed a report on whether China manipulates its currency, a finding that would trigger increased pressure on Beijing.
U.S. officials in Beijing were heartened by Hus comments on yuan reform and their appearance in official Chinese press reports, seeing that a sign that Chinas top leader was committed to some movement on the yuan.
The time for movement may not last long.
China must let its yuan soon resume rising against the dollar or risk renewed ire from Washington, two prominent Chinese economists wrote in the International Economic Review, a Chinese journal that reached subscribers this week.
We believe that the second quarter of 2010 is the optimum time window for loosening up the renminbi exchange rate mechanism, wrote Zhang Ming and He Fan, both of the Chinese Academy of Social Sciences, a government think tank.
The Chinese government should fully use this opportunity.
Additional reporting by Arshad Mohammed, Chris Buckley and Lucy Hornby Writing by Chris Buckley Editing by Ken Wills source
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