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Jan 18, 2011, 01.05 PM IST | Source: Reuters

Economy and Korea on agenda for Obama-Hu summit

US President Barack Obama will host Chinese President Hu Jintao for a state visit on Tuesday in a crucial summit of the world's two biggest powers that some analysts have called the most important since Deng Xiaoping's visit 30 years ago.

Economy and Korea on agenda for Obama-Hu summit

US President Barack Obama will host Chinese President Hu Jintao for a state visit on Tuesday in a crucial summit of the world's two biggest powers that some analysts have called the most important since Deng Xiaoping's visit 30 years ago.

Here are some questions and answers about issues causing tensions between the two countries, which are competitors but also partners:

What is the main source of tension? 

Economic issues will loom large at the summit and are a source of both deepening ties and friction.

The ballooning US trade deficit with China is expected to hit USD 270 billion this year. The two countries blame each other for causing problems in international commerce.

Washington complains that Beijing keeps its yuan currency too cheap, giving it an unfair advantage in trade, and Obama has warned China against relying too heavily on exports for growth. Chinese officials say US easy-money policy is aimed at weakening the dollar to boost exports and have said yuan appreciation would do little to alleviate the trade gap. Some US politicians have pushed for a law to punish Beijing if it does not revalue the yuan.

US Treasury Secretary Timothy Geithner began a new tack on the issue last week by saying it would be in China's own interest to let the yuan's value rise more rapidly in order to tamp down inflation in its own economy.

A group of US senators said on Monday the time had come for U.S. congressional action on China's currency policies.

Hu wants assurances for his workers and export industries that American markets will remain open to Chinese goods, said David Lampton, director of China Studies at Johns Hopkins University's School of Advanced International Studies.

"Washington would like China to move more decisively to rebalance its economy, reducing reliance on exports," Lampton said, adding that China is not expected to move as quickly as Washington would like.

Beijing is the biggest single holder of US Treasuries, with about $900 billion. Some in Washington have feared China could dump the bonds because of a political dispute but that is seen as counterproductive to China's economic interests and considered unlikely.

What is the touchiest diplomatic issue? 

The United States has been pushing China, North Korea's only major ally and financial backer, for more help persuading Pyongyang to abandon nuclear weapons and avoid potentially destabilizing actions like the North's bombarding of a South Korean island two months ago and the sinking of a South Korean navy ship that killed 46 sailors in March.

China, concerned with stability on the Korean peninsula, wanted Washington to ease its stance that it would not engage in negotiations again without North Korean concessions and head back toward talks. Beijing and Washington had been at loggerheads on the issue but Pyongyang's hostile actions and signs it is advancing its nuclear program have driven home the point in both capitals that it is better to talk than otherwise.

"At this juncture, we seem to have found some common ground with the Chinese going forward on a path that would take us back to the six-party talks," said Bonnie Glaser, a China expert at the Center for Strategic and International Studies in Washington.

What about the countries' images? 

Chinese officials worry that the United States is fostering relations with other countries in Asia to counter China's growing influence in the region.

Chinese leaders also are concerned about the extent to which their country is viewed with hostility in the United States, with politicians accusing China of pilfering US jobs by suppressing its currency and rigging its economy to favor Chinese state companies against American investors.

In addition, US allies in Asia worry about Chinese aggression. Japan and China have feuded over islands in the East China Sea and China has spent heavily to modernize its military, sent its navy further afield and asserted sovereignty over the contested South China Sea.

Hu's visit is unlikely to create any immediate policy breakthroughs but could give the countries more time to ease tensions and nurture deeper mutual confidence, said Sun Zhe, a professor at Tsinghua University in Beijing.

"If this easing can last until after the end of the visit, say into February and beyond, that will give both sides three months to work on their ties and achieve a steadier relationship," Sun said.

Is beijing backing Washington on Iran?

Washington wants China to back moves to punish Iran for its nuclear program but Beijing has not been as forceful as the United States would like.

It has used its diplomatic weight to help protect Tehran, which it considers an ally. China backed Washington's push for a fourth round of sanctions against Iran in June, but then fought to remove all but one Iranian bank from a list of firms in those sanctions.

However, the two sides have been working more closely, and some analysts say policy toward Iran is one area on which Hu and Obama have found the most common ground.

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