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China's Hu Says He Wants Gradual Yuan Reform

Chinese President Hu Jintao speaks during the opening ceremony of the U.S.-China talks.
China and the United States have opened talks in Beijing with polite comments but few signs of tangible progress on differences over economic issues.

President Hu Jintao said early on there would be no change in Beijing's policy toward its yuan currency. In a speech opening this year's annual Strategic and Economic Dialogue top-level talks, Hu spoke of continuing a "steady advance" in reforming the exchange-rate mechanism.

To critics, that simply means prolonging what they see as China's tight hold on the yuan, which economists say is as much as 40 percent undervalued against other major currencies. The cheap currency gives Chinese exporters an immense price advantage against competitors.

It's a central issue for the 200-strong U.S. delegation led by Secretary of State Hillary Clinton and Treasury Secretary Timothy Geithner. The exchange rate not only contributes to China's massive trade surplus with the United States -- $227 billion in 2009 alone -- but also has the potential to damage overall relations between the two powers.

That's because a vocal group of U.S. congressmen is pushing for punitive restrictions on Chinese imports on the American market unless Beijing lets the yuan find its own level on money markets.

On other topics, however, Hu said the sort of things Washington wants to hear. "We will push forward the expansion of domestic consumption; increase household consumption; positively push forward the healthy and balanced development of foreign trade; and oppose all forms of trade protectionism,” Hu said.

Geithner raised concerns over complaints that foreign companies have a harder time operating in China than domestic firms.

"Our common interest lies in supporting a more open global trading system with a fair balance of benefits and responsibilities in which countries are able to compete on a level playing field,” Geithner said. “Our two countries have benefited greatly from open trade and investment, and we welcome a more open China today."

China's approach to this year's talks appears to be marked by caution. Chinese officials have said it's impossible to foresee the scope of Europe's financial problems and therefore impossible to judge the overall health of the global economy.

Finance Minister Xie Xuren says the steep fall in the value of the euro has already hit Chinese exports to the European Union. He says the European currency has fallen 14 percent against the yuan in recent months, reducing the competitiveness of Chinese goods on the big EU market.

For its part, China is pressing the United States to ease export curbs on "dual use" technology with possible military applications. At a meeting with Geithner, Vice Premier Wang Qishan said Beijing hopes to hear from Washington in detail during the talks about its timetable for gradually removing barriers to high-tech exports to China.

The United States is currently reviewing its export controls, meant to prevent China's military from gaining access to technology that can be used in weaponry. The controls apply to goods such as supercomputers, lasers, navigation systems, and high-performance materials used in missiles.

with material from agency reports
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