Euro zone woes set to dominate Beijing talks
Increasing concern about the global financial system stemming from Europe's debt crisis will outweigh longstanding bilateral issues in talks between the world's two most powerful economies next week, according to senior officials and diplomats.
With China facing US pressure on the rate of yuan appreciation and its massive trade surplus, Assistant Finance Minister Zhu Guangyao yesterday stood firm on Beijing's exchange rate policy and hinted that the euro zone's woes were the real focus of attention.
The second Sino-US strategic and economic dialogue meeting, in Beijing on Monday and Tuesday, will be a two-track affair. The economic track will be chaired by Vice-Premier Wang Qishan and US Treasury Secretary Timothy Geithner, with the strategic track to be chaired by State Councillor Dai Bingguo and US Secretary of State Hillary Rodham Clinton.
'Pressure and noise from the outside can only obstruct our progress,' Zhu said of US criticism of the yuan's exchange rate.
In a briefing on the talks, Zhu said the global economy's priority should be to steady financial conditions in Europe after Greece's debt crisis.
Zhu also warned that Washington must deal with its fiscal deficit.
'We hope that the US fiscal deficit will fall as a proportion of GDP as the economy recovers and reaches a sustainable level,' he said. The US budget deficit hit a record US$1.4 trillion last year, roughly 10 per cent of the economy. The White House projects the deficit this year will reach US$1.6 trillion.
Diplomats familiar with the talks said negotiators from both countries had agreed to focus on co-operation in dealing with global financial challenges.
'Discussion of other economic issues will also need to take into consideration the latest developments in global finances,' one diplomat said, adding that some changes had been made in the priorities of topics.
Analysts said China seemed less likely to revalue the yuan, given the global financial uncertainty. Shen Jianguang, an analyst with Mizuho Securities Asia, said the fresh financial woes suggested that the yuan's exchange rate and trade deficit issues would be less important at the talks.
'Now the worry for the US government is the decline of the euro and losing competitiveness to euro-area producers,' Shen said.
Tom Orlik, an analyst with Stone & McCarthy Research Associates, said the US might have hoped for progress on the exchange rate before the talks. But the euro zone woes could delay progress.
'The European sovereign debt crisis has thrown a spanner in the works of the global recovery, and a resumption of the yuan's stalled appreciation may now be delayed,' Orlik said.
Ticking off a long list of priorities proposed by negotiators ahead of the talks, the diplomat said the top Chinese concern was still the safety of the country's massive holdings of US dollar-denominated assets. China is the world's largest holder of US Treasuries, with US$895.2 billion.
'Beijing wants a more specific guarantee from the Obama administration that it is their [the administration's] responsibility to safeguard the dollar,' the diplomat said.
The US top priorities are market access to the Chinese market, demanding that Beijing scrap discrimination against foreign firms in government procurement and in its protection of indigenous innovation. US companies would like more access to China's US$82 billion government procurement market.
Asset management
Beijing has made clear it wants the US to safeguard the dollar
