US and China agree broad deal on economic relations

US and Chinese officials agreed a broad new trade deal on Tuesday that includes granting US firms more access to key Chinese sectors. US Treasury Secretary Timothy Geithner (pictured) hailed "promising shifts" in economic relations.


REUTERS - China on Tuesday pledged easier access for U.S. companies to key sectors of its economy by removing barriers to its huge market in government contracts and offering a foothold to U.S. mutual funds.

The pledges were made in two days of talks between the world's two biggest economies which ended with both sides hailing progress in their often tense relationship.
"We are seeing very promising shifts in the direction of Chinese economic policy," U.S. Treasury Secretary Timothy Geithner said.
The annual Strategic and Economic Dialogue yielded more results on economic issues than some analysts had expected, although many remained skeptical China's market-opening vows would translate into concrete benefits for U.S. business.
The talks between top U.S. and Chinese officials carried extra significance because domestic politics may hamper decision-making next year ahead of a U.S. presidential election and Chinese leadership succession.
While some advances were made on the economic track, there was scant movement on thorny diplomatic issues.
"The outcome of this round of meetings shows a clear understanding on both sides that the two countries have shared long-term economic interests and there is scope for a mutually beneficial bargain," said Eswar Prasad of the Brookings Institution in Washington.
"The real flashpoints are on political and security issues, including human rights," he added.
But U.S. Secretary of State Hillary Clinton, in an interview with The Atlantic magazine, said disputes over human rights would not stop U.S. engagement with China.
"We don't walk away from dealing with China because we think they have a deplorable human rights record," Clinton said, according to a transcript released by the State Department.
Both sides repeated their stances on North Korea, where China has resisted U.S. pressure to act more forcefully to persuade Pyongyang to back down from confrontation and resume nuclear disarmament talks.
The two sides did agree to step up coordination on Afghanistan, and discussed the political upheavals across the Middle East and North Africa, which U.S. officials say carry worrying resonance for China's leadership.
They reiterated their positions on Iran but made no new announcements. China has reluctantly backed U.N. sanctions aimed at curbing Tehran's nuclear ambitions, but U.S. officials say that some Chinese entities are not complying with them and have urged Beijing to tighten up.
Even so, a senior Chinese finance official said the talks were a "win-win" for both countries. China claimed Washington gave ground by easing restrictions on high-tech exports though U.S. officials said only they would weigh Beijing's concerns.
On the key issue of exchange rates, Geithner said China needed to allow a faster rise in the value of the yuan, a comment brushed back by China's Vice Finance Minister Zhu Guangyao, who said Beijing will move at its own speed.
The yuan has appreciated 5.14 percent since being loosened from a two-year peg to the dollar last June, well below what many U.S. lawmakers believe is needed to allow for a level playing field for U.S. producers in global markets.
China on Tuesday reported a hefty trade surplus and record exports in April, ammunition for its overseas critics.
Surprisingly, according to a U.S. official, China -- the United States' biggest creditor -- did not raise concerns about the staggering U.S. budget deficits, which could top out at $1.4 trillion this year.
Market opening in words
In a potentially big step forward for U.S. firms seeking more access to China's financial services market, China agreed to let U.S. and other foreign banks sell mutual funds in China and provide custodial services.
However, some U.S. commentators said China's past behavior suggested U.S. companies might see little benefit.
"They let you in the market under conditions where you cannot be a real competitor," Derek Scissors of the conservative Heritage Foundation said. "That's what they've done every single time, so that's what I expect will happen with mutual funds."
U.S. officials indicated Beijing would also consider letting foreign insurance companies sell auto insurance in China for the first time, which could be a boon for business in what is becoming the world's largest car market.
China also said it would take steps to try to ensure the software that government agencies used was not pirated.
Perhaps of most significance was a fresh pledge China made on government purchasing policies that U.S. and European firms had complained locked them out of a big market.
As part of its efforts to spur technological innovation by Chinese firms, Beijing had sought to ensure government purchases came from firms using Chinese-owned technology.
However, during presidential-level talks in January, China pledged that government purchases would be delinked from its "indigenous innovation" policies.
At these talks, it stated explicitly that the pledge extended to purchases by local governments -- not only the central government -- answering a big concern of U.S. businesses.
Susan Schwab, a former U.S. trade representative, voiced reservations about how real the access to the potentially lucrative Chinese government procurement market will be.
"As with all agreements with the Chinese on trade, we're not going to know how significant it is until we see it implemented," she said. "Some of the commitments are similar to previous commitments that didn't quite play out."


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