Obama warns strains unless U.S., China balance growth

By Simon Denyer and Caren Bohan

WASHINGTON (Reuters) - The United States sees China as a vital partner and competitor, but the two countries need to address economic imbalances or risk "enormous strains" on their relationship, President Barack Obama said on Monday.

Three days before leaving on a nine-day trip to Asia, Obama said the world's two most powerful nations need to work together on the big issues facing the globe, and any competition between them has to be fair and friendly.

"On critical issues, whether climate change, economic recovery, nuclear nonproliferation, it is very hard to see how we succeed or China succeeds in our respective goals, without working together," he told Reuters in an interview.

Speaking in the Oval Office, he warned that the economic relationship between the two countries had become "deeply imbalanced" in recent decades, with a yawning trade gap and huge Chinese holdings of U.S. government debt.

Obama said he would be raising with Chinese leaders the sensitive issue of their yuan currency -- which is seen by U.S. industry as significantly undervalued -- as one factor contributing to the imbalances.

"As we emerge from an emergency situation, a crisis situation, I believe China will be increasingly interested in finding a model that is sustainable over the long term," he said. "They have a huge amount of U.S. dollars that they are holding, so our success is important to them."

"The flipside of that is that if we don't solve some of these problems, then I think both economically and politically it will put enormous strains on the relationship."

Excessive consumption and borrowing in the United States and aggressive export policies, high savings and lending from Asia fueled a global economic bubble which burst last year.

The United States is trying to persuade China to consume more at home, and to buy more U.S. goods in the process, while Washington pledges to save more and borrow less.

Leaders of the Group of 20 major rich and emerging economies pledged at a summit in Pittsburgh in September to aim for policies to ease economic imbalances. Obama said one of the goals of his trip was to build on that agreement.

LOOKING FOR MORE OPEN MARKETS

The Obama administration has resisted domestic pressure to brand China a currency manipulator, but has slapped tariffs on Chinese tires, steel pipes and other products.

Obama said he would be telling Beijing it needed to do more to open its markets.

"Our manufacturers, I think, would have legitimate concerns about our ability to sell into China," he said, emphasizing that boosting U.S. sales oversees was a crucial part of his strategy to revitalize the economy and create jobs.

Obama took office in January when the U.S. economy was mired deep in recession. Although there have been mounting signs of economic recovery, unemployment is stubbornly high. The U.S. jobless rate jumped to 10.2 percent in October, the highest rate in 26 years.