President Barack Obama and Chinese Premier Wen Jiabao pledged their countries to closer cooperation on economic issues to foster the global recovery.
In remarks to reporters before a meeting at the United Nations in New York, the two leaders didn’t directly address the friction points between China and the U.S., including China’s currency valuation and trade.
Both subjects were addressed at length during their one-on-one conversation, and Obama told Wen the U.S. wants to see a more rapid and “significant” rise in the yuan’s value, Jeff Bader, Obama’s director of Asian affairs, said at a briefing later.
Obama said China has been an “outstanding partner” and its work with the U.S. is “absolutely critical” in dealing with the financial crisis.
“Obviously we continue to have more work to do on the economic front,” Obama said. More discussions are needed to achieve “balance and sustained economic growth.”
Wen said through a translator the common interests of the U.S. and China “far outweigh” any differences. He also said he wants to “foster favorable conditions” for a U.S. visit by President Hu Jintao sometime next year.
Political pressure is building on Obama to take a more aggressive stance on China’s currency policy, which he has said is valued lower than the market would indicate and gives China an advantage in trade. China overtook Japan in the second quarter as the world’s second-largest economy after the U.S.
The U.S. trade deficit with China widened to $145 billion in the first seven months of this year, from $123 billion for the same period in 2009. The deficit is widening at a time when Obama is dealing with a sluggish economic recovery in the U.S. and an unemployment rate of 9.6 percent.
The yuan has appreciated about 2 percent against the dollar since June 19, when the central bank said it would pursue a more flexible exchange rate after keeping the currency at about 6.83 versus the U.S. currency for almost two years.
“The president talked about the importance of our trading relation in general and the currency issue specifically,” Bader told reporters. Obama told Wen that China needs to “do more than it has done to date” and described it as “the most important issue” in their talks.
“We look to see more rapid and a significant” revaluation “in the months to come,” Bader said. The Chinese also know “we were disappointed” that there hasn’t been much movement in the yuan’s value since the central bank’s decision, he said.
Chinese leaders are aware of the building momentum in the U.S. Congress for action to restrict China’s imports over the currency issue, Bader said.
“There was a lengthy discussion of the impact and the politics of the issue,” Bader said, characterizing the meeting as having a “positive tone.”
Wen reiterated China’s intention “to continue with reform of their exchange rate mechanism,” he said.
At a hearing of the House Financial Services Committee yesterday, U.S. Treasury Secretary Timothy F. Geithner repeated his assertion that the yuan is “significantly undervalued.”
Pressure from Congress
House Democratic leaders say they are moving forward with legislation intended to push China to raise the value of its currency by allowing U.S. companies to petition for duties on imports. Polls showing Democratic seats at risk heading into the November elections may boost prospects for the bill.
Representatives for companies such as Peoria, Illinois- based Caterpillar Inc., New York-based Citigroup Inc. and Redmond, Washington-based Microsoft Corp. have been lobbying to block the legislation, which they say will be counterproductive.
Wen said at a meeting yesterday with U.S. business leaders including Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein in New York that the yuan’s value isn’t the cause of the U.S. trade deficit with his country.
“The main cause of the U.S. trade deficit is not the exchange rate of the Chinese currency, but the structure of investment and savings,” he said. “China doesn’t pursue a trade surplus intentionally.”
In a speech to the UN today, Wen said his government will seek political “restructuring” while creating a more conducive environment for foreign investors.
The movement of hundreds of millions of Chinese farmers to towns and cities in the coming decades “will create more domestic demand than ever, open up broad market and development space and serve as a powerful engine” for the Chinese and world economies, he told the UN.
Among the other areas in which the U.S. is seeking China’s cooperation is keeping up pressure on Iran to submit to UN mandates that it halt efforts to enrich uranium, a step toward building a nuclear bomb. Obama said the U.S. and China have had “very frank discussions” on climate change.
“The world looks to the relationship between China and the United States as a critical ingredient on a whole range of security issues around the world,” Obama said.
Hu’s state visit to the U.S. may be scheduled in January of 2012, Robert Gibbs, Obama’s chief spokesman said. The date is still under discussion.
Tomorrow, Obama is scheduled to meet with leaders from the Association of Southeast Asian Nations. Obama has said involvement in the region is crucial to trade and economic growth, and keeping the U.S. as a counterweight to China’s growing influence.
The 10-member Asean group is the fourth-biggest market for U.S. goods. Still, China’s trade with Asean surpassed that of the U.S. in the past decade, growing to $178 billion last year.
Obama last met with Asean leaders in Singapore in November 2009, the first U.S. president to do so. The member-nations are Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.