China's Hu goes to Washington wary of wish-list

By Chris Buckley

BEIJING, Nov 14 (Reuters) - China goes to the Washington financial summit facing expectations for global leadership that innate caution and domestic fears leave it unready to shoulder.

Troubled developed economies have in past weeks floated wish-lists of rescue steps Beijing could take, hoping it will use more of its towering forex reserves to help drag them out of a slump and shore up international financial institutions.

Those hopes will be in focus on Saturday in Washington when President Hu Jintao sits with 19 other leaders of the big rich and developing countries to expand negotiations on repairing and revamping the machinery of world finance.

"This is the first time that China is a major player at a time of global crisis when the rules are being rewritten," said Kenneth Lieberthal, a professor at University of Michigan who was a White House adviser on China policy.

While Beijing does not want to be the Scrooge blamed for spoiling Western economies' Christmases, nor does it see itself as a Santa, ready either to hand over much money amassed during three decades of fast growth or to recast global financial rules.

"The Chinese government will be active but low-key in talks on the financial crisis," said Zhang Ruizhuang, an international affairs professor at Nankai University in Tianjin, near Beijing.

"The outside world sees China as a powerful rising power, but the Chinese leaders know all about the domestic problems and excessive hopes of their powers....They don't want to spoil things, but they don't want a high profile either."

Hu may seek more voting rights in the International Monetary Fund in return for more funding from Beijing. China could even gain a better investment return if it shifts some of its foreign reserves into IMF control and out of U.S. government debt.

But China is not immune from the world economic chill, suffering its own abrupt slowdown as its property market falters and exports flag. And its leaders are used to keeping their heads low in international crises outside their own backyard.

"If the past is any guide, and generally it is, the Chinese will move in a low-key way, reacting to proposals from the United States and others," Lieberthal said.

"If you look at a vast array of foreign policy decisions over the years, caution is almost always the watchword for China."

"CHINA WILL CHOOSE ITS OWN PATH"

Beijing may well find some blame for the financial crisis laid on its doorstep by those who think an undervalued yuan helped sow trouble. Calls for a faster appreciation of the Chinese currency, though, are likely to go nowhere.

"China will choose its own path," Jonathan Anderson, chief emerging markets economist for UBS bank, told reporters in Beijing this week.

But while Beijing gripes at U.S. dominance, it does not want drastic moves to shake U.S. financial pre-eminence, said analysts. With so many U.S. dollars stored in its reserves and the U.S. market so vital for its exports, China "doesn't want to upset the U.S. status now," said Zhang of Nankai University.

"It knows that if the U.S. economy topples, China will be dragged down too," he said.

Beijing's reluctance to assume a lead role in global financial negotiations is magnified by domestic worries, political habit and broader uncertainty.

Gloomy statistics in past days have shown how markedly the Chinese economy has slowed, and it will take time for even the giant stimulus package to boost growth. China's industrial output expanded in October at its weakest pace in seven years.

One step China could take to shore up confidence in the U.S. economy, and in turn win itself political capital, would be to make a commitment to keep buying Washington's debt. But such a move may not wash well in China during so much criticism of U.S. financial mismanagement.

Yet with China's trade surplus still surging, adding to its mass of forex reserves, Beijing policy-makers must keep parking money abroad, wrote Stephen Green, head of China research for Standard Chartered Bank, in a recent research note.

"The U.S. and EU debt markets are the only places big and liquid enough to absorb them," he wrote.

(Additional reporting by Simon Rabinovitch; Editing by Ken Wills and Sanjeev Miglani)