Engage China: Latest News

The meeting between President Barack Obama and Chinese President Hu Jintao on the sidelines of the G20 summit included only a cursory discussion of trade that focused on cooperation and did not include a discussion on China's large trade surplus and no mention of China's undervalued currency, according to briefings by senior administration officials after the meeting Wednesday (April 1).

"The discussion of trade was about the ways in which the crisis has lowered trade for everybody," one official said. "The level of trade, and the need for fiscal stimulus generally in order to bring recovery and growth and recovery and trade" was the focus of the trade discussions, one official said during the April 1 briefing. "And there was not a discussion of imbalances."

Separately, another senior Obama administration official said the discussion between Obama and Hu focused on "things in common" between the U.S. and China, including the ongoing economic slow down and the implementation of stimulus plans.

However, the joint statement issued by Obama and Hu after the meeting included language that Hu emphasized China's "commitment to strengthen and improve macroeconomic control and expand domestic demand, particularly consumer demand, to ensure sustainable growth, and ensure steady and relatively fast economic development."

The discussion of China's imbalanced economic growth, with a dependence on exports, was a key talking point under the Bush administration and was used as a way to discuss China's currency policy without explicitly highlighting the politically charged issue.

Obama had previously discussed the issue of global trade imbalances with Chinese Foreign Minister Yang Jiechi during a March 12 meeting at the White House. Also, during a Jan. 30 phone conversation with Hu, Obama "stressed" to the Chinese leader the need to "correct global trade imbalances," among other issues, according to the White House readout of the call.

The officials did not give a reason why the two leaders did not discuss the issue of currency, a politically sensitive issue in the U.S. When a reporter asked the senior officials if currency or the Chinese proposal for a new reserve currency to replace the dollar were raised, a senior official said "there was no mention of either of those two subjects." The official also refused to say why the U.S. did not raise either issue, stating only that "it didn't come up" and that reporters "can speak to the Chinese about their agendas."

After the meeting, the two leaders announced the creation of a Strategic and Economic Dialogue, co-chaired on the U.S. side by Secretary of State Hillary Clinton and Treasury Secretary Timothy Geithner and on the Chinese side by State Councilor Dai Binggou and Vice Premier Wang Qishan.

The Strategic and Economic Dialogue will feature a different meeting schedule than the Bush administration-era U.S.-China Strategic Economic Dialogue, according to a joint statement by Clinton and Geithner and confirmed by a Treasury spokeswoman on April 2. The Strategic and Economic Dialogue will meet once a year, with this year's meeting tentatively scheduled for July 13-14 in Washington, D.C., according to one informed source.

On the newly announced format for the high-level dialogue, Clinton and Dai will co-chair the strategic track of the discussion, while Geithner and Wang will co-chair the economic track, according to Hu and Obama. Wang was the interlocutor with then-Treasury Secretary Henry Paulson at the Strategic Economic Dialogue during the Bush administration after the retirement of Vice Premier Wu Yi.

The Obama administration has not said what issues will be included in either track. For example, it was not announced if the discussions under the China-U.S. Ten Year Energy and Environment Cooperation Framework would stay under Treasury supervision, as they were during the Bush administration, or move over to the State Department.

Both the Treasury and State Departments were involved in the framework under the Bush administration, but Paulson was designated as the chair for the U.S. side under former president George W. Bush. A State Department spokesperson said that details were being worked out and that no additional information was available on the 10-year framework.

However, the joint statement announced an agreement to intensify their policy dialogue and practical cooperation in energy, the environment and climate change, building on the framework and working for "positive results" at the Copenhagen climate change conference in December of this year.

The Bush administration announced the 10-year framework on June 18, 2008, with the goal of fostering "extensive collaboration over a ten year period to address the challenges of environmental sustainability, climate change, and energy security."

Obama and Hu also pledged to strengthen economic and financial cooperation in light of the current global economic crisis. Obama pledged to cut the fiscal deficit in half once the economic recovery is "firmly established," according to the statement. Hu emphasized China's commitment to expand domestic demand, particularly consumer demand, to ensure sustainable economic growth.

Both presidents discussed regulatory changes needed to reform and strengthen the global financial system. Hu welcomed the U.S. announcement of a comprehensive financial regulatory reform agenda, and Obama welcomed China's commitment to continue the development and reform of its financial system.

In an April 1 statement, the Engage China coalition of 11 financial services groups highlighted the fact that China made the commitment to reform its financial system. According to Rob Nichols, the president of the Financial Services Forum, "As China enters the next stage in its growth, an efficient, competitive financial services sector will be essential to the services-focused and consumer-driven economic growth China's leaders seek. Expanding access to the Chinese market for U.S. financial services firms will help accelerate economic modernization and growth."

Another financial services source added that the U.S. sector was "encouraged" by China agreeing to this language, since China could easily have refused any commitment on financial reform, and used the financial crisis as a reason to avoid further market openings.

Previously, Chinese officials had backed away from any commitments on financial services in light of the financial crisis. Chinese Ambassador to the U.S. Zhou Wenzhong said on Oct. 8 that China will "need to be very careful about openness, about further opening up of the financial markets."

In separate comments on April 1, the U.S. Chamber of Commerce highlighted the need for a "results-oriented dialogue" with China that resolves pressing issues and thereby fosters and improved environment for high-level discussions, while praising the high-level dialogue.

According to Jeremie Waterman, the Chamber's senior director for China on April 2, the continuation of the Joint Commission on Commerce and Trade will help progress at the high-level dialogue. The Chamber is "very excited that the JCCT will have a prominent role in the bilateral relationship," he said. "The JCCT is a critical mechanism for solving the short-term issues that will create breathing space at the Strategic and Economic Dialogue, both on the economic and political tracks."

Waterman added, however, that the high-level dialogue can also be used to create short-term solutions to issues outside of the JCCT's purview, such as foreign investment levels and insurance.

China may have been waiting for the Obama-Hu meeting to formally announce the new Strategic and Economic Dialogue to underscore its importance, sources said. They noted that the original SED in the Bush administration was announced during a meeting between Bush and Hu.