SPECIAL REPORT-Obama plays China card, but who holds the ace?

TENSIONS COOLING WITH TAIWAN

Taiwan is still the one issue that could trigger war between China, which claims sovereignty over the self-ruled island, and the United States, which is committed by U.S. law to provide weapons for Taiwan's defense.

But Obama's tenure has coincided with a cooling of tensions between Beijing and Taipei thanks to the 2008 election of Taiwan President Ma Ying-jeou, who has sought better ties with China. But potential friction over U.S. arms sales remains.

The Obama administration has angered some for appearing to play down human rights in the interest of gaining Chinese cooperation in combating the financial crisis.

Obama broke with presidential tradition and did not meet the Dalai Lama when the exiled Tibetan spiritual leader visited Washington last month. But U.S. officials reject the idea that Obama snubbed the Dalai Lama and tell critics to judge the policies by their results.

Other foreign policy disputes stem from China's scorching economic growth. China's need for energy and raw materials to fuel its growth has led it to deepen ties with countries which have troubled relations with the United States or face international condemnation for their human rights records or pursuit of banned weapons.

China's oil investments in Sudan drew calls for a boycott of the 2008 Beijing Olympics by critics who said China abetted the perpetrators of atrocities in Darfur. China's energy trade with Iran is seen as helping Tehran withstand Western economic sanctions over its nuclear ambitions.

Drew Thompson, director of China Studies at the Nixon Center in Washington, said the United States has started to take into account how Chinese "resource needs and self-perceived insecurities" influence its foreign policy.

"The more we address those insecurities and resolve them as much as possible, the more we will get from China in terms of shaping the behavior of other nations, such as Iran, Sudan and Zimbabwe," he said.

NO LONGER CHURCHILL AND ROOSEVELT WITH A BRANDY

The new dynamic in Sino-America relations was on clear display last April, when Obama brokered a dispute between Hu and French President Nicolas Sarkozy at the G20 summit in London in April.

The G20 was under enormous pressure to show unity amid fears financial markets could face another wave of turmoil after the chaos of late 2008 and early 2009.

But at a luncheon of beef and asparagus, Hu and Sarkozy were deadlocked over the French president's proposal to crack down on international tax havens. China was concerned about the potential impact on the Hong Kong and Macau banking sectors.

Ratcheting up the pressure was a threat Sarkozy had issued on the eve of the summit to walk out unless the G20 talks yielded a firm commitment on financial regulatory reforms.

Obama pulled each leader aside and urged each to give ground, even though his own view on tax havens was closer to Sarkozy's.

At a news conference later, he spoke approvingly of the rise of countries like China and said it was a good thing decisions were no longer made by "Roosevelt and Churchill sitting in a room with a brandy."

"That's an easier negotiation but that's not the world we live in, and it shouldn't be," Obama said. (Additional reporting by Glenn Somerville in Washington, Chris Buckley in Beijing and Anna Willard in Paris, editing by Jim Impoco and Claudia Parsons)