U.S. and China stick to guns on global balancing at APEC

YOKOHAMA, Japan (Reuters) - Cracks between advanced and emerging economies that were papered over by the G20 resurfaced at an Asia-Pacific summit Saturday, with Washington and Beijing returning to their positions on trade and currencies.

U.S. President Barack Obama warned countries such as China against relying too much on exports for growth, and Chinese President Hu Jintao reiterated Beijing’s commitment to a gradual reform of its exchange rate regime.

“One of the important lessons the economic crisis taught us is the limits of depending primarily on American consumers and Asian exports to drive economic growth,” Obama told a forum of Asia-Pacific business leaders.

“Going forward, no nation should assume that their path to prosperity is simply paved with exports to America,” he said on the final leg of a 10-day tour that has also taken him to India, Indonesia and South Korea.

The United States and China blame each other for doing more damage to international trade. Washington contends the yuan is undervalued, giving it an export advantage, while Beijing argues the U.S. Federal Reserve’s easy-money policy is aimed at weakening the dollar to boost exports.

Hu, taking the podium shortly after Obama, told the business executives China wanted to expand domestic demand growth, and remained committed to reforming its exchange rate “on the basis of retaining initiative, controllability and gradualness.”

“China will continue making encouraging a balanced international balance of payments an important task in ensuring macroeconomic stability,” Hu said.

Obama’s national security adviser, Tom Donilon, later told a news briefing China needed to show progress on reforming the exchange rate by the time Hu visits Washington in January.

“President Hu Jintao’s visit in January would be an important time to look at exactly what the quantum of progress has been on this,” Donilon said.

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“The United States ... would like to see China proceed apace on these reforms, because it’s important, we think, to China, but it’s important to the world in terms of a stable economic path forward.”

Obama and Hu joined other leaders of the Asia-Pacific Economic Cooperation (APEC) group for a weekend summit that is focusing on policies to ensure balanced growth and taking concrete steps toward setting up a vast free-trade area in the world’s fastest-growing economic region.

They ended their first day with a dinner and cultural kabuki theater show but, breaking with the “funny shirts” tradition of APEC summits, this year the leaders wore business suits instead of the host country’s native attire for their “family photo.”


The APEC leaders agreed after a first round of talks the world economy was improving but still fragile, a Japanese government official said. Sovereign debt problems remain a risk, while unemployment and the financial sector continue to be of concern, the official said.

Ireland was a reminder of those risks and the financial contagion they potentially pose.

Irish borrowing costs shot to record highs this week because of concern about the country’s ability to reduce a public debt burden swollen by bank bailouts, and worries that private bond holders could be forced to shoulder part of the costs of any bailout by taking “haircuts” on their holdings.

But International Monetary Fund chief Dominique Strauss-Kahn told reporters at the APEC summit that “Ireland can manage well” and did not need a bailout at this time.

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The G20 countries are trying to find ways of bringing down overly large current account surpluses and deficits among major economies. The group’s leaders agreed in Seoul to set “indicative guidelines” for imbalances, but offered investors little proof that the world was any safer from economic catastrophes.


The leaders of China and Japan met on the sidelines to cool bilateral tensions, while Beijing offered Japan reassurances over its concerns about a drying-up of rare earth exports and a dispute over gas fields.

A Japanese government official said the 22-minute meeting between Prime Minister Naoto Kan and Chinese President Hu Jintao at an Asia-Pacific summit in the Japanese city of Yokahama was a big step toward improving ties.

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“I recognize that ties between Japan and China have taken a big step toward improvement,” Japanese Deputy Chief Cabinet Secretary Tetsuro Fukuyama told reporters.

Hours earlier, thousands of Japanese took to the streets of Yokahama, a port city near Tokyo known for having Japan’s biggest Chinatown, to protest what they see as an imperialistic China.

Sino-Japanese ties have chilled since September after Japan detained a Chinese trawler captain whose boat collided with Japanese coast guard ships near a chain of islands claimed by both countries, called Senkaku in Japan and Diaoyu in China.

Japan was also trying to defuse another territorial spat, this one with Russia over an island claimed by both countries.

Russian President Dmitry Medvedev urged Japanese Prime Minister Naoto Kana at a meeting on the APEC sidelines to stop diplomatic gesturing, after the Russian leader recently visited islands claimed by Japan, Russia’s foreign minister said.

“Our president said that it is better to abandon emotional statements and diplomatic gestures because they do not help, but he proposed to change the approach and prioritize the economy,” Russian Foreign Minister Sergei Lavrov told reporters.

APEC is for the first time championing a collective growth strategy, emphasizing balanced and sustainable growth, an elusive goal when the global economy is split between cash-rich exporters and debt-burdened importers.

The leaders will pledge to take steps to create a vast Free Trade Area of the Asia-Pacific (FTAAP) in the region, home to 40 percent of the world’s population and 53 percent of global economic output, by building on existing pacts.

Additional reporting by Patricia Zengerle, Chris Buckley, Kiyoshi Takenaka, Yoko Kubota, Chisa Fujioka, Alister Bull, Edwina Gibbs; writing by Bill Tarrant; editing by John Chalmers