Strategic and Economic Dialogue to highlight reform of financial system

WASHINGTON / BEIJING - Military representatives will be welcome at the table during the annual China-US Strategic and Economic Dialogue next week in Washington, said US diplomat Kurt Campbell.

It will be the first time the military has joined the high-level economic talks, Campbell said.

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Analysts see the inclusion of the militaries in the May 9 and 10 talks as an effort to stabilize military-to-military relations.

It also could be a sign that the nations are working to improve communication and transparency. Analysts said military relations have long been the most sensitive and fragile part of China-US relations.

The dialogue will touch on a broad range of topics including nuclear issues on the Korean Peninsula and in Iran, as well as recent turmoil in the Middle East, said Campbell, US assistant secretary of state for East Asian and Pacific affairs.

The dialogue will be co-chaired by Vice-Premier Wang Qishan and State Councilor Dai Bingguo, along with US Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton.

It will include heads from three dozen Chinese and US agencies and departments including banking, finance and science.

More than 300 journalists have registered for the event.

China's monetary policy, reform of its financial system and further opening of its capital market are expected to be high on the agenda.

Zhu Guangyao, China's vice-finance minister, said on Friday that while the two sides agree on the general direction of the yuan's reform, they have differences over the pace.

China is focusing on pushing forward reforms of the exchange rate regime while the US is asking for faster appreciation of the Chinese currency, he said.

But Zhu's comments did not indicate that China will give in to US pressure by accelerating the pace of the yuan's rise, reiterating that the exchange rate policy is a matter of China's sovereignty.

US officials have consistently criticized China's monetary policy, which they believe has led to an undervalued yuan and huge trade surplus with the US.

Zhu said that China is not deliberately seeking a trade surplus with the US, adding that its trade deficit in the first quarter shows the country has tried its best to boost imports and domestic consumption.

China's trade deficit topped $1 billion in the first quarter - the country's first quarterly trade deficit in six years - due to high commodities prices and robust domestic consumption.

"It can't be ruled out that we may see more trade deficits in coming months but China will still likely achieve balanced trade with a modest surplus this year," Zhu said.

Zhu added that China hopes the US will provide a favorable legal and policy environment for investment by Chinese enterprises and the US should not discriminate against Chinese companies, especially State-owned ones.

David Loevinger, senior coordinator and executive secretary for China affairs and the Strategic and Economic Dialogue, said that the US is aware of China's concerns about US control over technology exports, China's investment in the US and US recognition of China's market economy status.

Campbell said the discussions will not be as formal as previous meetings, adding that the delegates will have more opportunities to exchange ideas freely.

The biggest obstacle to forging stable China-US relations is misunderstandings, Bruce Jones, director of the Managing Global Order, told China Daily.

"So it is very easy for something to be misinterpreted, a small thing to become a big thing. Friction can come quickly," Jones said.

That is why the two countries need "to build some kind of security competent mechanism to allow both to understand what it is they need to do on security issues around China", Jones said.

Beijing suspended military exchanges with Washington last year over the sale of more than $6 billion in arms to Taiwan. In June, China rejected a proposed visit by US Defense Secretary Robert Gates. But toward the end of the year, ties began to thaw through several lower-level military exchanges, culminating in Gates' visit to China in early January.

Chen Bingde, chief of the general staff of the People's Liberation Army, will visit the US from May 15-22.

Chen's visit, the first in seven years by an officer of his rank, is part of efforts to implement a consensus reached by President Hu Jintao and US President Barack Obama, according to the Chinese Defense Ministry.

Li Xiang and Li Xiaokun contributed to this story.

China Daily