China and U.S. each claim gains on yuan in talks

BEIJING (Reuters) - China will chart its own course on currency reform, top officials from Beijing and Washington said on Tuesday at the end of talks that both agreed had aired plenty of disputes while leaving any answers for later.

The two-day Strategic and Economic Dialogue covered much of the rough economic and foreign policy terrain that has sometimes strained ties between the world's biggest and third biggest economies, including trade and technology barriers, North Korea and Iran.

At the end, both Washington and Beijing claimed some victory on the issue that has dogged economic relations throughout the year: China's policy of tethering its yuan currency to the dollar, which the Obama administration says gives Chinese products an unfair advantage.

The U.S. said Beijing was heeding those complaints. China said Washington was heeding Beijing's assertion that it would steer currency reforms in its own way and own pace.

At the close of the talks, U.S. Treasury Secretary Timothy Geithner said the discussions on the yuan were encouraging but would not speculate when Beijing might let its yuan rise in value as American lawmakers have demanded.

"This is of course China's choice," he said in the statement.

Geithner said on Bloomberg Television that he was "as confident as I've ever been" that China will see that it is in its own interest to let the yuan resume appreciating.

Chinese Assistant Finance Minister Zhu Guangyao said the U.S. "clearly understanding China's stance" on the yuan.

"The United States also understands that China will independently decide on the specific steps of its exchange rate reforms, based on its own interests, taking into account world economic conditions and China's own development trends," he said.

The show of mutual goodwill may for now ward off a flare-up in tensions over the yuan, which many in U.S. Congress say is a big part of the reason for their country's trade deficit with China, which was $226.8 billion in 2009.

But the talks left unclear whether any possible currency moves by China will be enough to satisfy critics in Congress.

China has held its currency at about 6.83 to the dollar since mid-2008, trying to protect its exporters from the damage of the global financial crisis. In the three years before then, the yuan had risen about 21 percent against the dollar.

In April, Geithner delayed a report on whether China manipulates its currency, a finding that would trigger increased pressure on Beijing.

On Tuesday, he declined to tell reporters when his department would issue its delayed report. "That time will come," he said.

IMPOSSIBLE TO AGREE ON ALL ISSUES

Tensions flared between Beijing and Washington in the first months of 2010, when China denounced U.S. criticism of its Internet censorship, Washington's arms sales to Taiwan, and Obama's meeting with the Dalai Lama, Tibet's exiled leader.

After that stormy start to the year neither side appeared willing to risk worrying markets with renewed feuding, and the talks swaddled the hard problems between them in soft words.

"It is impossible for the United States and China to agree on all issues and the two sides will have disagreements and differences," leading Chinese diplomat, State Councilor Dai Bingguo, said at the end of the meeting..

He and U.S. Secretary of State Hillary Clinton said they agreed on the importance of stability on the Korean Peninsula after South Korea said North Korea was behind the torpedoing of one of its warships in March, killing 46 sailors.

But China steered away from public comments that could alienate North Korea, a poor and isolated state on China's northeast border.

Chinese Vice Foreign Minister Cui Tiankai urged calm and told reporters that it was up to all sides to "proceed from the wider context of protecting the peace and stability of northeast Asia and the Korean Peninsula."

Clinton said she had "productive" talks with China on annexes to proposed sanctions on Iran that would detail the people and firms to be targeted by under a proposed United Nations Security Council resolution.

FISCAL DISCIPLINE

China is the world's 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.

This time, China was quieter about any worries.

Geithner told an audience of Chinese officials that the Obama administration was aiming to steadily lower its deficit as a percentage of national output.

"The basic strategy is to make sure that our economy is growing, then institute long-term reforms, and restore the basic discipline to the budget process that we abandoned in the previous decade," he said in a speech.

(Additional reporting by Arshad Mohammed, Doug Palmer and Lucy Hornby; Editing by Ken Wills, Ron Askew)