US, China to thrash out currency issues

WASHINGTON: President Barack Obama's economic pointman makes his first trip to China in the coming week as Washington moves to address persistent currency, trade and investment concerns dogging the two powers.

Treasury Secretary Timothy Geithner will be in Beijing June 1-2 to meet senior Chinese officials for discussions on "a range of issues of importance to both countries," his office said.

No details of the trip have been provided so far but analysts say Geithner will have to grapple with a plethora of issues, ranging from US suspicion China is manipulating its currency for trade gains to Beijing openly questioning the US dollar's special status as the leading global currency.

China has also publicly expressed concerns over the safety of its huge US bond investment holdings worth nearly 800 billion dollars as the United States sinks deeper into debt and the greenback gets hammered.

Obama came into office promising to talk tough with China on a range of issues, including complaints from Congress that China's manipulation of its yuan currency was fueling the US trade deficit with the Asian giant.

Against the difficulties facing the recession-hit US and the relatively bearish economic environment in the other industrialised nations, Washington appears likely to take a soft approach with China, which remains the top growth driver, analysts said.

In addition, the United States, the largest shareholder in the International Monetary Fund, is prodding cash-flush China to pour more resources into the Washington-based Fund to help stabilise the global economy reeling from financial and economic crises, the analysts noted.

"I think Geithner would like a constructive tone to the relationship and doesn't want the headline to be 'China and the US disagree on everything,'" said Brad Setser, a former senior Treasury official.

Setser, now an analyst at the Council on Foreign Relations, a New York-based think tank, particularly does not expect much movement on the US push for a more flexible Chinese currency aimed at addressing "global imbalances."

"He will make that argument obviously but in the very short run, they have an important desire not to have abrupt changes," he said.

Just a day after the announcement of Geithner's trip, US lawmakers unveiled a plan to retaliate against China and other countries that allegedly manipulate their currencies to snare an edge in international trade.

"The time has come for Congress to stand up for American workers and not allow China to run roughshod over the American economy. With this legislation we will finally force China to stop cheating and level the playing field for America's manufacturers," said Republican Representative Tim Murphy.

The plan backed by both Democrat and Republican lawmakers aims to use US anti-dumping and countervailing duties to strike back at prolonged currency manipulation that lawmakers say make Chinese exports more competitive.

Instead of lecturing on currency reforms, Geithner may have to instead assuage China's concerns about US monetary and fiscal policies aimed at battling the current recession but which Beijing fears could drive down the value of dollar-based assets.

"For sure, we doubt the secretary will be pounding the table to demand further revaluation of the yuan," said Carl Weinberg, chief economist of High Frequency Economics.

"At this point, we think the Obama administration wants to make 'nice' with Beijing," he said.

Geithner's trip is also expected to lay the groundwork for institutionalised high-level talks on key political and economic concerns between the two countries.

Obama and Chinese leader Hu Jintao decided in London earlier this year to establish the "US-China Strategic and Economic Dialogue."

Geithner and Chinese Vice Premier Wang Qishan will chair the "economic track" of the dialogue while US Secretary of State Hillary Clinton and Chinese State Councilor Dai Bingguo will chair the "strategic track," officials said.

The two sides are to hold the first round of the dialogue in Washington in mid-year.

Obama's predecessor George W. Bush had two high-level institutionalised dialogue mechanisms -- the "senior dialogue" and the more high-profile "strategic economic dialogue" -- to thrash out common problems.

The Obama administration had wanted "a comprehensive dialogue" with China, saying the Bush administration focused too much on economic issues.