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Mr Obama said he was under 'no illusions that the United States and China will agree on every issue' Photo: REUTERS
By David Lawder and Sue Pleming
Reuters
WASHINGTON (Reuters) - The United States and China broached two touchy topics -- currencies and climate change -- in talks on Tuesday that appeared to be more about establishing positions than hammering out firm commitments.
In the first round of what will be an annual "Strategic and Economic Dialogue," the two major economic powers signed a memorandum promising greater cooperation in tackling climate change, energy and the environment, although the document was not publicly released and few specifics emerged.
The countries also "touched upon" the exchange rate between China's yuan and the U.S. dollar, but there were no detailed discussions, People's Bank of China chief Zhou Xiaochuan told reporters through an interpreter.
The United States has largely steered clear of a public appeal for China to allow its currency to rise faster, but Beijing did take a sharper tone, warning against letting the dollar slide too far.
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"As a major reserve currency-issuing country in the world, the United States should properly balance and properly handle the impact of the dollar supply on the domestic economy and the world economy as a whole," Vice Premier Wang Qishan said.
The United States would like to see a stronger yuan to help correct trade imbalances, but China remains dependent on its export sector, and would stand to lose from a dollar fall that would reduce the value of its substantial dollar holdings.
The formal session of the two-day talks wrapped up near midday on Tuesday, almost entirely behind closed doors.
Press conferences were still expected from officials including U.S. Treasury Secretary Timothy Geithner, Secretary of State Hillary Clinton, and Wang.
With the United States trying to claw its way out of the longest recession since the Great Depression of the 1930s and China suffering from a steep drop in demand for exports, a key focus of the talks was on restoring economic stability.
But there were plenty of other tricky issues on the table.
Clinton co-chaired the U.S. side and was seeking Beijing's cooperation on a wide range of sensitive diplomatic issues from North Korea and climate change to infectious diseases and energy markets.
RESTORING GLOBAL BALANCE
The United States is China's best customer for exports, and China is the United States' biggest creditor, holding $802 billion of U.S. Treasury securities as of May 31. Washington needs Beijing to keep buying its debt to finance a budget deficit estimated to hit $1.8 trillion this year.
On Monday, Chinese officials said they wanted to see the United States rein in its soaring budget deficit, while the U.S. side appealed to China to stimulate domestic consumption to restore balance to the global economy and trade.
The veteran Wang said China would help to ensure a recovery from the past two years of financial crisis, which he said seemed to be largely over, but pointed to concessions that China wanted.
"We will work to increase our imports from the United States," he said, adding: "We hope the U.S. will relax its controls and restrictions on exports to China of its high-tech technologies."
Geithner, just six months into his job as U.S. treasury chief, already has visited Beijing to try to reassure it that its dollar-denominated U.S. investments will keep their value and that U.S. deficits will be brought down.
China and many other global investors are keeping a wary eye on U.S. efforts to revive the economy, fearing inflation will surge if Washington waits too long to pull the plug on trillions of dollars worth of spending and lending programs.
Zhou, the head of China's central bank, said Beijing wanted to make sure the U.S. economy was well on its way to recovery before China withdrew its own stimulus spending, which has been widely credited with helping to stabilize the world economy.
"If we are confirmed that the recovery of the U.S. economy is established and stable, if we see that the United States starts to exit its expansionary fiscal and monetary policy, then China will see what it will do at that time," he said.
Clinton separately hosted senior Chinese officials at the State Department on Tuesday.
"We were very pleased by our discussions yesterday which were thorough, comprehensive, very open and candid and extremely useful," Clinton said at the start of the meeting.
In particular, Washington wants greater support from veto-wielding U.N. Security Council member China on controlling both North Korea and Iran's nuclear programs.
(Additional reporting by Mark Felsenthal and Paul Eckert; Writing by Emily Kaiser and Glenn Somerville; Editing by James Dalgleish)
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