2011/05/11

US, China laud deal on economic ties

WASHINGTON, May 11, 2011 (AFP) - The United States and China inked a broad economic framework Tuesday, one the authors hope will guide often fractious relations between the world's two biggest economies.

US Treasury Secretary Timothy Geithner and a top Chinese official, Vice Premier Wang Qishan, signed the agreement at the conclusion of two days of high-level annual talks in Washington.

Geithner welcomed "very promising shifts" in the direction of Chinese economic policy.

"We're very confident we're going to see substantial, ongoing improvement in the opportunities that American companies have in the Chinese market, both American companies operating in China and companies that are creating, building things in the United States," Geithner said.

The economic framework capped the third round of the talks, called the US-China Strategic and Economic Dialogue, designed to build ties between the two countries.

US Secretary of State Hillary Clinton and State Councilor Dai Bingguo led the strategic track of the talks.

The economic agreement builds upon commitments made by President Barack Obama and President Hu Jintao during Hu's state visit to Washington in January, as well as the two previous dialogues.

Geithner pointed to some progress on the thorny issue of China's currency, the yuan, which the US and many economists say is kept deliberately undervalued to gain a trade advantage that has produced a record trade deficit for the US.

The currency has strengthened five percent against the dollar since last June when Beijing pledged greater flexibility -- but the gains have not satisfied critics who claim the yuan is undervalued by as much as 40 percent.

"We hope that China moves to allow the exchange rate to appreciate more rapidly and more broadly against the currencies of all its trading partners," he said at a news conference.

Geithner said that among the pledges both sides made in the framework agreement, China declared it will stop demanding firms make use of domestically developed technology in order to win lucrative government contracts.

"China," he said, "confirmed that it will no longer employ government procurement preferences for indigenous innovation products at any level of government."

The United States has long complained that China shuts out US companies for Chinese government contracts by favoring "indigenous innovation."

"This is important to make sure of course that US technology, US firms can compete fairly for business opportunities in China," Geithner said.

China's vice minister of foreign affairs, Cui Tiankai, called the framework a "milestone in China-US cooperation."

"So far both our nations have never signed any economic cooperation as broad... with any third country," Cui said, speaking through an interpreter.

Regarding the yuan, "we stick with China's national interests" on monetary policy he said, adding that the two sides also discussed "the importance of a stable dollar as a major global currency."

The dollar is down about 8.0 percent in the year to date compared with a basket of currencies held by trade partners, including China.

The agreement outlines actions each side will take to promote a mutually beneficial economic partnership, according to the Treasury.

The United States vowed to maintain vigilance against excess volatility in exchange rates, and China will continue to promote exchange rate flexibility for the renminbi, the official name of its currency.

China also would continue to take steps to make the yuan an internationally traded currency.

"This is a significant policy choice, one which will require more open capital flows into and out of China, and more market-based interest and exchange rates," the Treasury said.

China committed to take steps to increase domestic consumption in a bid to move the booming economy away from export dependence, including raising household incomes at a pace faster than economic growth.

The United States, for its part, said it welcomes foreign investment in all sectors, including the financial sector, and insisted it was committed to a level playing field for Chinese financial institutions.

Under pressure from the Obama administration, China agreed to deepen the reform of its financial system and increase the use of direct financing channels, including stocks, bonds and private equity.

Geithner had vowed to make financial reform a top priority for the talks to address what critics say is an unfair flow of capital to state-owned enterprises that all but ignores the needs of private firms.