WRAPUP 2-Obama, Hu discuss yuan on nuclear summit sidelines

* Obama reiterates yuan should be more market orientated

* Obama, Hu discuss barriers to market entry in China

* Hu stressed joint dialogue to resolve friction

* China seen resisting foreign pressure
(Adds analyst, background)

By Paul Eckert and Caren Bohan

WASHINGTON, April 12 (BestGrowthStock) – President Barack Obama
repeated his call for more yuan flexibility during a meeting on
Monday with China’s Hu Jintao, deploying careful diplomatic
language while Beijing stressed dialogue.

A later report from China’s official Xinhua news agency
reflected a stiffer tone from President Hu, but in Washington
there was a deliberate effort by both sides to stress the
cordial nature of the talks.

“The president reaffirmed his view that it is important for
a … sustained and balanced global economic recovery that
China move toward a more market-oriented exchange rate,”
Jeffrey Bader, a top White House adviser, told reporters.

The Obama administration wants to avoid embarrassing Hu
over the yuan currency while he attends a nuclear security
summit in Washington, shrugging off domestic political pressure
for stern words against Beijing.

The U.S. Treasury recently delayed publication of a report
that politicians had urged Obama to use to name China a
currency manipulator, paving the way to eventual official
action.

Months of tensions — over trade, Internet freedom, Taiwan
and Tibet — placed heavy expectations on the 90-minute talks
on the sidelines of Obama’s nuclear security summit, even if
the meeting was unlikely to produce concrete results.

“Most importantly, it seems that the atmospherics
surrounding the bilateral U.S.-China relationship have
improved, opening the door for movement on a number of issues,”
said China expert Drew Thompson of the Nixon Center in
Washington.

A SHIFT IN POLICY

Foreign currency investors will scrutinize Obama’s and Hu’s
words for evidence of a shift in Beijing’s yuan policy.
Analysts say a relaxation of the currency peg makes sense for
China in the long term, but they do not expect significant
changes in the immediate future.

A Chinese official in Washington characterized the two
leaders’ discussions as “positive and constructive”.

Chinese spokesman Ma Zhaoxu said Hu told Obama the two
nations “should properly resolve economic and trade frictions
through consultations on an equal footing and jointly uphold
the larger interests of China-US economic cooperation.” For
story see [ID:nN12245214]

However, Xinhua news agency later reported Hu had told
Obama that Beijing would “firmly stick” to its own path on the
yuan.

Hu also noted that yuan appreciation would neither balance
Sino-U.S. trade, now at a huge deficit in China’s favor, nor
solve the U.S. unemployment problem. [ID:nTOE63C00J]

That stance was no surprise to analysts who say that
public U.S. lecturing on the currency, and threats of punitive
tariffs by lawmakers, only make China dig in against policy
changes that even Chinese economists say are overdue.

“The Chinese want the exchange rate change to be theirs,”
said economist Derek Scissors of the Heritage Foundation.

“They are not going to do anything at all to tip it to the
U.S. and thus give the impression of successful U.S. pressure.”
he said.

Xinhua quoted Hu as saying China wants to increase its U.S.
imports, especially of high-tech products. Repeating a
decade-old mantra from Beijing, Hu urged Washington to loosen
its export controls of such goods, the agency said.

Obama must balance geopolitical considerations in dealing
with China, America’s largest foreign creditor, against the
domestic imperative to show he cares about protecting jobs that
U.S. lawmakers have deliberately linked to the yuan.

Monday’s brief U.S.-China summit also covered Iran’s
nuclear ambitions — a point of friction between Washington and
Beijing that has shown signs of easing as the Chinese inch
closer to a tougher approach sought by Western countries.
[ID:nN08208811]

“China and the United States share the same overall goal on
the Iranian nuclear issue,” said spokesman Ma in a statement
that did not mention the sanctions Obama is seeking on Iran.

US JOBS

Politicians complain the value of the yuan is being held
down against the dollar by Beijing to boost Chinese exports at
the expense of U.S. exports, and thus jobs, and want Obama to
take a hard line to push for China to allow it to appreciate.

The pressure comes from Obama’s own Democrats as well as
Republicans, with high U.S. unemployment likely to play a
dominant role in November’s mid-term congressional elections.

In a carefully nuanced message, Obama has said a more
market-orientated yuan would provide an essential aid to global
rebalancing, echoing the conclusion of the Group of 20 advanced
and developing nations in Pittsburgh last September, which
included China. He returned to that theme on Monday with Hu.

“The president also noted his concern over some
market-access issues, market-access barriers in China and the
need to address them as part of the rebalancing effort,” Bader
said.

Beijing runs a massive $250 billion trade surplus with the
United States.

Some U.S. critics claim this shows the currency is
undervalued to give the country’s export sector an unfair
competitive edge, but Scissors and other economists say there
are far more damaging Chinese subsidies and trade barriers to
worry about.

Chinese officials say the yuan-dollar peg provided vital
stability during the global financial crisis of 2008 and they
have been reluctant to tinker with a formula that has kept
China’s factories in business during the global recession.

Recent signals from China have encouraged hopes that it was
edging toward a more flexible yuan, which analysts say makes
sense for China on its own merits regardless of any impact on
U.S. trade.
Investing Advice

(Writing by Alister Bull, editing by Philip Barbara)

WRAPUP 2-Obama, Hu discuss yuan on nuclear summit sidelines