May 10, 2011

U.S., China Reach 'Milestone' Agreement On Security, Economic Policy

The United States and China on Tuesday pledged to deepen their cooperation on economic and military matters, setting aside a year of tension over issues such as arms sales to Taiwan and the value of China’s currency with what officials referred to as a “milestone” agreement.

Ending two days of high-level talks in Washington, the two sides agreed that their top military leaders would meet regularly in what has been dubbed the “Strategic Security Dialogue.”

In addition, Treasury Secretary Timothy F. Geithner and Chinese Vice Premier Wang Qishan released what they described as a blueprint for managing the sometimes contentious economic relations between the two countries. The “framework of comprehensive economic cooperation” was based on what Geithner said was a “healthy recognition” by Chinese officials that they need to open more aspects of their economy to outside investment if they are to sustain the high rates of growth needed to continue improving living standards for their 1.4 billion people.

The agreement included action on some long-standing issues — including initial moves by China toward opening its financial sector by allowing U.S. and other foreign firms to sell auto insurance, sell mutual funds and other investments, and underwrite corporate bonds. Though modest steps for a country where the financial system remains firmly under state control, U.S. officials say they are the types of changes needed for China to put more spending power in the hands of households and to help small and medium-size businesses finance their operations.

Significantly, China also agreed for the first time to sit down with the United States and explain in detail its use of export credits — a sometimes opaque system that props up domestic companies with public money. U.S. officials said they would explain similar American programs as well, in hopes that the two sides could come to agreement on the rules and limits that should govern such programs.

Despite its manufacturing and export success, China “is still at the early stages of making the transition” to a market economy, Geithner said, adding that he expected “substantial ongoing improvement” in the ability of U.S. and other foreign firms to operate in China or export goods to the country.

The latest round of talks, called the Strategic and Economic Dialogue, built on the January visit to the United States of Chinese President Hu Jintao, a trip that helped reset relations between the two countries after a series of disagreements.

Throughout 2010 the two sides had clashed over China’s management of its currency and policies that seemed to discriminate against foreign companies in the Chinese market. The People’s Liberation Army cut off ties with its U.S. counterpart in January 2010 after the Obama administration announced a $6.4 billion arms package for Taiwan. China rejected a planned trip by Defense Secretary Robert M. Gates last June, but he was permitted to visit this past January.

During conversations this week, “we have built trust,” said Secretary of State Hillary Rodham Clinton. The meetings, she said, covered a “dizzying” set of issues.

That included China’s human rights record. During the two-day event, senior U.S. officials publicly and privately upbraided the Chinese over their recent crackdown on pro-democracy activists and dissidents. The most stinging comment emerged Tuesday when Clinton was quoted by the Atlantic magazine as saying China had a “deplorable human-rights record.”

When an interviewer remarked that the Chinese appeared scared about the spillover effect from demonstrations in the Middle East, Clinton answered: “Well, they are. They’re worried, and they are trying to stop history, which is a fool’s errand. They cannot do it. But they’re going to hold it off as long as possible.”

The interview with Clinton was conducted on April 7 but appeared Tuesday.

Chinese officials did not respond directly to the criticism but said that their human rights record had “improved” over the decades and that all countries — including the United States — could do better.

The U.S. Chamber of Commerce said in a statement that the agreements reached this week “have the potential to bolster the confidence of American investors” after a year in which businesses have expressed concern about China’s direction.

The United States runs a large trade deficit with China, and many American companies have complained about discriminatory taxes and regulations that put their intellectual property at risk and prevent them from competing effectively. China’s trade surplus widened in April after the country ran an unexpected trade deficit in the first three months of the year.

Patrick Cronin, an expert on the Chinese military at the Center for a New American Security, said the security dialogue wasn’t important in terms of tangible results. “But it reassures the region, it reassures the next generation of Chinese, it reassures American business, that this relationship can be predictable,” he said.