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Xi, Kerry Start U.S.-China Talks Looking Past Tensions

Photographer: Jim Bourg/AFP/Getty Images

Jack Lew, U.S. treasury secretary, left, and John Kerry, U.S. secretary of state, center, listen as Xi Jinping, China's president, addresses a Joint Opening Session of the U.S.-China Strategic and Economic Dialogue at the Diaoyutai State Guesthouse in Beijing on July 9, 2014, in Beijing. Close

Jack Lew, U.S. treasury secretary, left, and John Kerry, U.S. secretary of state,... Read More

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Photographer: Jim Bourg/AFP/Getty Images

Jack Lew, U.S. treasury secretary, left, and John Kerry, U.S. secretary of state, center, listen as Xi Jinping, China's president, addresses a Joint Opening Session of the U.S.-China Strategic and Economic Dialogue at the Diaoyutai State Guesthouse in Beijing on July 9, 2014, in Beijing.

Chinese and U.S. officials meeting for annual bilateral talks this week delivered assurances that the world’s two biggest economies have areas of mutual interest, seeking to look past a growing list of diplomatic and trade disputes.

Relations must be viewed in the “long term” so both countries can keep moving in the same direction, Chinese President Xi Jinping said yesterday at the opening of the sixth U.S.-China Strategic and Economic Dialogue at the Diaoyutai State Guesthouse in Beijing.

Secretary of State John Kerry, who is joined by Treasury Secretary Jacob J. Lew and other U.S. officials, spoke of his Shanghai-born grandfather to highlight historic links between the U.S. and China. Kerry added that differences over individual issues must not be interpreted as an “overall U.S. strategy” because “the U.S. does not seek to contain China.”

Such public pledges contrast with signs of increasing wariness of each other’s strategic intentions and tactics. China in November declared an air-defense identification zone over disputed areas, and the U.S. in May indicted five Chinese military officers for computer theft of trade secrets.

China is concerned that the Obama administration’s foreign-policy rebalancing toward Asia is aimed at thwarting China’s growing influence in the region. It canceled cybersecurity talks due this week and has criticized the U.S. for favoring Japan and the Philippines over China on maritime territorial disputes in the South and East China seas.

Economic Agenda

The agenda includes regional disputes as well as climate and energy issues, two Obama administration officials who asked not to be identified said in a briefing before the talks. Lew is trying to encourage China to open its economy to more market forces and U.S. companies.

Lew said yesterday that greater exchange-rate flexibility in China would help raise household purchasing power and that opening the economy to more foreign investment is also important to boost productivity growth.

Lew is also calling for more transparency in China’s currency interventions.

China indicated it can’t stop intervention in the yuan because economic growth is too weak and capital flows aren’t steady enough to warrant changes.

“The U.S. side has repeatedly asked, in terms of exchange-rate policy, whether China needs to intervene any more,” Finance Minister Lou Jiwei said at a press briefing yesterday. “But for us, under the current situation, when the economy hasn’t recovered fully and when cross-border capital flows are not completely normal, we’ll continue” existing practices, he said.

U.S., Japan

This week’s talks come “at a critical moment,” said Sun Zhe, director of the Center for U.S.-China Relations at Tsinghua University in Beijing.

“China saw a strengthening of the U.S.-Japanese alliance in the past few months and was deeply upset about the formal indictment of five military officers over cyber-espionage, and this was just the top of a long laundry list,” Sun said. “There have been no obvious bright spots in cooperation between the world’s No. 1 and No. 2 economies, which both sides find unacceptable.”

The countries “understand that the sheer breadth and depth of economic ties calls for a multidimensional relationship that can tightly manage frictions and skillfully handle disagreements,” Sun said.

Patience

A conflict between China and the U.S. would be “a disaster for the two countries and the world,” Xi said yesterday. “As long as we uphold mutual respect, maintain strategic patience and remain unperturbed by individual incidents and comments, we’ll be able to keep relations on a firm footing despite ups and downs that may come our way.”

China’s deployment of an oil rig off the Vietnamese coast has added to tensions.

“It’s advisable for the two sides to remember that all these distractions -- arising from lacking strategic trust and perception of strategic goals between the two sides -- are as unprecedented as their goal of building a new model of major-country relationship itself,” Zhu Dongyang, a writer at China’s official Xinhua News Agency, said in a commentary.

In meetings yesterday, Kerry directly addressed Chinese criticism of U.S.-led alliances in Asia, one of the Obama administration officials said. Kerry pointed out that such ties help address natural disasters and threats such as North Korea’s nuclear weapons program, the official said.

Kerry told his Chinese counterparts that China benefits from the stability those alliances bring, according to the official. Kerry also reiterated that maritime disputes be resolved via arbitration if competing claims can’t otherwise be settled, the official said.

“I can tell you that we are determined to choose the path of peace and prosperity and cooperation, and yes, even competition, but not conflict,” Kerry said.

To contact the reporter on this story: Sangwon Yoon in Beijing at syoon32@bloomberg.net

To contact the editors responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net Brendan Murray, Joshua Fellman

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