U.S., China Open 2 Days Of High-Level Talks

The United States and China launch what they're calling a "strategic and economic dialogue" on Monday. Over two days in Washington D.C., Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton will meet their Chinese counterparts. On the agenda: climate change, U.S.-China trade and Chinese investment in U.S. government debt.

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The United States and China today launched what they're calling a strategic and economic dialogue here in Washington. Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton will meet with their Chinese counterparts. They'll face a crowded agenda and challenging issues. Among them: the management of climate change, trade between the U.S. and China, and Chinese investment in U.S. government debt.

NPR's Tom Gjelten reports.

TOM GJELTEN: As they prepare for this meeting, U.S. and Chinese officials had to be thinking where do we start? The United States wants Chinese support for global action to tackle climate change. The Chinese, like other emerging market economies want a larger voice in institutions like the International Monetary Fund.

Then there's the U.S. trade deficit with China which continues to grow even as the overall U.S. trade deficit declines.

Mr. NICHOLAS LARDY (Senior fellow Peterson Institute for International Economics): It's a very daunting agenda to try to undertake in a meeting that will only last a little bit more than a day.

GJELTEN: Nicholas Lardy is a China expert at the Peterson Institute for International Economics.

Mr. LARDY: I think the primary emphasis is going to be on reaching a broader understanding about the appropriate policies going forward on climate change and energy. I think the reform of the international financial system will get some priority.

GJELTEN: Secretary of State Hillary Clinton, leading the climate change discussion will be hoping for more cooperation from China than she got last week in New Delhi. She failed in her efforts there to get Indian support for an international agreement limiting carbon emissions. She's looking toward to the global summit on climate change to be held next December in Copenhagen.

First though, the United States and China have to get through this economic crisis. Both governments are focused mainly on the short term. At some point U.S. officials will put pressure on China to let its currency, the yuan, rise to its natural level. That would make Chinese goods more expensive here. U.S. manufacturers might then have a better chance to compete.

The overvalued yuan is a longstanding U.S. grievance, but Eswar Prasad, who follows the Chinese economy for the Brookings Institution says the currency complaint may have to be put aside for a while.

Mr. ESWAR PRASAD (Senior Fellow, Brookings Institute): The Chinese exchange rate is unlikely to be a major issue because it seems like the U.S. and the Chinese sides have decided to take it off the table for the immediate moment given that there are far more pressing priorities that both sides want to deal with.

GJELTEN: In fact, it's the Chinese who have all the leverage right now. They hold about 1.5 trillion dollars worth of U.S. government debt. They're worried that U.S. inflation might erode the value of that debt and Nicholas Lardy notes how they've taken to lecturing the United States in ways we haven't heard before.

Mr. LARDY: They have been in the position of getting a lot of advice from the United States over the years about the way they should reform their economic and financial system. I think they now sense U.S. vulnerability, and so to some extent they are emboldened to raise criticisms of our domestic policy, our financial policy, our fiscal policy.

GJELTEN: Every few days, lately, some high Chinese government official says it might make sense to move Chinese reserves out of dollar assets investing them in other currencies instead or in commodities or in companies around the world that might have value to the Chinese.

But Eswar Prasad, formerly a China specialist at the IMF says the Chinese know they have few investment alternatives to the U.S. dollar. Both sides know they have to restructure their economies but it will take time.

Mr. PRASAD: This dependence between the two economies, between China and the U.S. is in fact getting heightened during this process of recovery because the Chinese will continue accumulating reserves, will continue putting them into the U.S. treasuries, and continue helping to finance the increasing U.S. budget deficits.

GJELTEN: The U.S.-China strategic and economic dialogue meanwhile will continue. In six months there'll be another meeting in China.

Tom Gjelten, NPR News, Washington.

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