Obama invites China's Hu for state visit

President Barack Obama (R) greets China's President Hu Jintao at the Nuclear Security Summit in Washington, in this April 12, 2010 file photo.

TORONTO (Reuters) - President Barack Obama has invited Chinese President Hu Jintao for a state visit, a U.S. official said Saturday, as the two powers seek to narrow economic and political differences.

The date of the state visit, which will be only the third hosted by Obama since he took office in January 2009, has not been set, White House adviser Jeffrey Bader told reporters on the sidelines of a G20 summit in Toronto.

Hu accepted the invitation, Bader added.

The announcement came a week after China began to address one of the disputes that has bedeviled their relationship this year, ending the yuan's da facto peg to the dollar that had been in place since mid-2008.

The United States wants China to allow the yuan to rise more rapidly to help shrink Washington's trade deficit. U.S. lawmakers accuse China of keeping its exports artificially cheap and stealing U.S. jobs.

Obama told Hu he welcomed China's move toward greater currency flexibility and noted that Beijing's "implementation of it was very important," Bader said.

"The president stressed the need for balanced and sustainable growth and the role that China can play in achieving balanced and sustainable growth," he said, adding that Obama also called for a level playing field on trade.

Hu also extended a hand of cooperation to Obama in their meeting, saying China sought a closer relationship with the United States and that the two had already moved closer.

"We also want to strengthen the communication and coordination with the United States on major regional and international issues," he said.

The official Xinhua news said Hu told Obama that China had no intention of pursuing a trade surplus with the United States and had been actively increasing its imports from America.

Hu called on the United States to refrain from protectionism and to gradually reduce barriers to high-tech exports to China in order to achieve "healthy and balanced bilateral economic and trade relations," according to Xinhua.

China and the United States should stick to the principle of dealing with trade frictions through dialogue on an equal footing, Xinhua quoted the Chinese president as saying.

Hu said the world economy faced uncertainty and potential instability despite the unfolding recovery.

"The European sovereign debt issue is a cause for concern and the world cannot afford to underestimate its impact on global economic recovery," Xinhua paraphrased Hu as saying.

CHINA SAYS YUAN DECISION BASED ON OWN NEEDS

In a separate briefing on the sidelines of the summit, Chinese officials served up a reminder the world's third-largest economy resents being pressured to change policy.

Zhang Tao, a director-general in the central bank, said China made the decision to enhance the flexibility of the yuan's exchange rate for itself, based on its own economic needs.

But U.S. Treasury Secretary Timothy Geithner praised China's move on the yuan and said its leaders were taking the right steps in trying to reduce reliance on export-led growth.

"If you look at what China is doing, growth in China now is much more driven by consumption and domestic demand than it has been in the past," he said.

Even if the Obama administration and Beijing seem to have put the worse of the currency dispute behind them, other irritants in their relationship remain acute.

U.S. Defense Secretary Robert Gates has said China's decision to break off military-to-military contacts this year could undercut regional stability.

China broke off the contacts after the Obama administration notified Congress in January of a plan to sell Taiwan up to $6.4 billion worth of arms.

The United States has also criticized China's Internet censorship, while Beijing has denounced Obama's meeting with the Dalai Lama, Tibet's exiled leader.

Obama has put a priority on mending fences with China, which his administration sees as important given Beijing's increasing economic clout and Washington's desire for its cooperation on foreign policy issues such as Iran and North Korea.

(Reporting by Caren Bohan and Patricia Zengerle; Additional reporting by Alister Bull and Simon Rabinovitch and Alan Wheatley in Beijing; Editing by Ron Popeski)