May 6, 2011 / 7:17 AM / 8 years ago

U.S. and China race political calendar to curb irritants

WASHINGTON/BEIJING (Reuters) - Top officials from the world’s two largest economies meet next week to try to tackle irritants in their relations, a task that will only grow tougher as domestic politics seize the stage next year.

The flags of the United States and China hang outside of the New York Stock Exchange March 30, 2011. REUTERS/Lucas Jackson

The United States and China have a lengthy list of long-standing irritants on both the economic and diplomatic fronts, requiring careful management to ensure none boil into a dispute that damages a still-fragile global recovery.

By 2012, jockeying for position ahead of U.S. presidential elections and orchestrating the succession of Chinese President Hu Jintao will preoccupy policymakers in each country, so the window for advancing a complicated agenda is relatively small.

Chu Shulong, a professor at Tsinghua University in Beijing, cautions that as China’s focus shifts to a successor to Hu, who retires as Communist Party chief in late 2012 and leaves the presidency in 2013, it will be less flexible in policymaking.

“For example on exchange rates, China will be focused on stability and economic security, and that could mean the government is less willing to move faster on the (yuan),” Chu suggested.

The United States has pressed China for years to allow the yuan to rise in value. China has allowed a faster appreciation of late, but U.S. officials argue more must be done for Beijing to combat sharply rising domestic prices.

Analysts say Monday and Tuesday’s once-a-year Strategic and Economic Dialogue is unlikely to break new ground on the range of prickly issues — from U.S. impatience with the pace of the yuan’s rise to Beijing’s unhappiness at U.S. arms sales to Taiwan — that complicate bilateral ties.

AIR OUT DIFFERENCES

But the talks, co-chaired on the U.S. side by Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton and on China’s by Vice Premier Wang Qishan and State Councilor Dai Bingguo, are touted as useful to air differences and prevent diplomatic fires.

One innovation this time is the inclusion of military officials from each side. China’s military might is growing and the United States is watching warily.

“Both sides say they want to improve relations, but when it comes to the substantive issues, neither wants to make significant concessions,” said Chu. “I’m afraid that the defining feature of China-U.S. relations now: lots of talk, but not much action.”

For its part, China is likely to voice concerns about the ongoing political wrangling in Washington over how best to tighten a budget that is expected to spawn a $1.4 trillion deficit this year. Hanging in the balance is a decision on raising the $14.294 trillion legal limit on U.S. debt.

China is the United States’s main creditor, with a legitimate interest in the safety of its investments.

For the United States, the yuan will again be a centerpiece, although officials also plan to pressure Beijing on policies they say favor China’s state-owned enterprises and to push the world’s second-largest economy to open up more to foreign investment.

“This imbalance of opportunity is a barrier to continued improvement of the U.S. and China’s commercial relationship,” U.S. Commerce Secretary Gary Locke said on Wednesday. “It is part of a broader trend of China recently narrowing its commercial environment after a long and fruitful period of opening.”

A U.S. Treasury official on Thursday outlined the sweep of the economic topics on the table.

“We are going to be talking about monetary policy, we’re going to be talking about exchange rate policy, we’re going to be talking about fiscal policy, we’ll be talking about reserve management policy,” the official said.

“That’s why we bring people like (Federal Reserve Chairman) Ben Bernanke and (China’s Central Bank) Governor Zhou (Xiaochuan) and all the senior officials on both sides together to talk,” he added.

YUAN MOVING UP

China is already taking steps to tamp down rising inflation. It has raised reserve requirements and has been guiding the yuan higher.

Last month, the yuan rose 0.9 percent against the dollar, marking a stepped-up pace of appreciation from a 0.4 percent March rise as the dollar dropped to three-year lows against a basket of currencies.

The U.S. Treasury, content to encourage yuan appreciation and hold off on tougher measures, delayed a scheduled April 15 report on currency practices of key partners, including China.

Progress next week may be even harder to make on strategic issues where foreign policy, security concerns and regional disputes come into play.

A summit in January between U.S. President Barack Obama and Chinese President Hu eased tensions that flared last year over North Korea and soothed China’s concern about U.S. military presence in Asia and arms sales to Taiwan.

But the Obama administration has said it will use the strategic dialogue to press China about human rights — always a sensitive topic for Beijing, which fears potential unrest inspired by uprisings across the Arab world.

Additional reporting by Doug Palmer and by Chris Buckley, Koh Gui Qing and Michael Martina in Beijing, writing by Glenn Somerville, editing by Dan Grebler

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