Top U.S. and Chinese officials will meet in Beijing on Monday and Tuesday for the Strategic and Economic Dialogue.
The annual meeting provides a high-level forum to manage a vital but sometimes tense bilateral relationship between the world’s only superpower and the fastest-rising emerging economy.
Frictions that marred ties earlier this year have eased somewhat, but politicians on both sides face a challenging job cooperating on global economic and security while reassuring key constituents they are watching out for national interests.
Here are the main sources of tension:
CURRENCY AND DEBT
The United States complains that China keeps its currency artificially undervalued, unfairly helping exporters.
China has unofficially pegged the yuan to the dollar since mid-2008. The yuan has gained against a trade-weighted basket of currencies this year, tracking a strengthening dollar.
Beijing says a stable currency has helped the world economic recovery. It wants “quiet discussions” about exchange rate issues, and loud lobbying will only delay movement on the yuan, a senior official said this week.
The Chinese government has its own concerns about U.S. economic policy. It fears the value of its dollar holdings could be eroded by massive debt issuances to fund the U.S. stimulus.
China is the world’s largest holder of Treasuries with $895.2 billion, and added to its stockpile in March for the first time in seven months.
Rash U.S. moves that threaten China’s massive purchases of U.S. debt, and its funding of the U.S. deficit, are unlikely.
TRADE AND INVESTMENT
Anti-dumping measures and other trade frictions have piled up faster since the global economic crisis began in 2008 — even though both governments are quick to denounce protectionism.
Disputes centre on everything from tyres, steel products and poultry to Chinese tariffs on raw materials exports, and quality concerns over Chinese-made food, toys and other goods that Chinese manufacturers view as a type of protectionism.
U.S. firms investing in China complain about intellectual property theft, murky regulations, corruption and unfair advantages enjoyed by domestic rivals.
U.S. officials say they are particularly worried about parts of China’s “indigenous innovation” programme to promote homegrown technology, which they say is creating barriers to foreign high-tech companies seeking to win government supply contracts.
China complains about investment barriers on the U.S. side, citing resource investments blocked on national security grounds.
In 2009, U.S. exports to China totalled $77.4 billion, but were dwarfed by $220.8 billion in exports from China to the United States, China’s second biggest trade partner. Falling U.S. demand thanks to the financial crisis narrowed the trade gap.
In February, Chinese Premier Wen Jiabao expressed hope that trade frictions would ease and said China was not deliberately seeking a trade surplus with the United States.
TIBET AND TAIWAN
Exiled Tibetan spiritual leader the Dalai Lama makes frequent visits to the United States and met President Barack Obama in the White House in February, drawing condemnation from Beijing, which denounces him as a separatist.
China accused Obama of damaging ties by meeting the Dalai Lama and said it was up to Washington to repair relations. Beijing fears ethnically distinct Tibetan areas will strive for independence, taking with them one-sixth of China’s territory.
Taiwan also remains a sore point. China has threatened sanctions against companies making weapons or planes that under a U.S. $6.4 billion arms sale plan would be destined for the self-ruled democratic island off the mainland’s cost.
Beijing has never renounced the use of force to reclaim Taiwan, which it considers sovereign territory. The United States says it is obliged by U.S. law to help the island defend itself.
China has yet to act on its sanctions threat, and recently allowed a U.S. aircraft carrier to visit Hong Kong. But Beijing has said it will curtail military exchanges to show its anger.
DIPLOMATIC AND MILITARY INFLUENCE
As China has grown to the world’s third-largest economy, it is gaining greater clout, especially in Asia and Africa.
It is also upgrading its military and space capability, and Washington has said Beijing should be more open about its defence spending and strategic intentions.
China is wary of the United States’ global military strength. U.S. patrols in waters China considers its exclusive zone led to minor incidents last year. In 2001, a U.S. spy plane was forced to land in China after colliding with a Chinese fighter.
Yet China and the United States work together in talks aimed at getting North Korea to give up its nuclear weapons programme. Washington wants China to put stronger pressure on North Korea, as well as Iran, over their nuclear activities.
U.S. Internet firms have fared poorly in China, which censors content and blocks many foreign websites, including popular social media such as Twitter and Facebook, and YouTube.
In March, Google Inc shut its mainland Chinese-language portal and began rerouting searches to its Hong Kong site, after suffering a sophisticated cyber-attack that it said came from within China.
The United States has recently become more vocal in opposing other governments’ censorship of the Internet, but said the bilateral relationship is “mature enough” to handle differences as they cooperate on issues of common interest.
(Writing by Emma Graham-Harrison)