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"Canada can, within a positive friendly atmosphere, ask the Chinese government to resolve the Tibetan situation."

Q & A - What is causing tension between U.S. and China"

September 19, 2010

Andrew Quinn
Editing by Tim Dobbyn
Reuters India
ibnlive.com
September 16, 2010

WASHINGTON (Reuters) -- U.S. Treasury Secretary
Timothy Geithner sharpened his criticism of
China's exchange rates on Thursday at a
congressional hearing on Beijing's currency
policy, one of a lengthening list of issues
sparking tension between the two countries.

Below are some questions and answers about the
U.S.-China relationship, which is growing more
fractious as the two huge powers jostle for
political and economic influence around the world.

HOW IMPORTANT IS THE RELATIONSHIP"

U.S. President Barack Obama has said the
U.S-China relationship will shape the 21st
Century, and on nearly every front that is
already happening. Trade between the two
countries is flourishing, cross-border investment
is increasingly a two-way street and Washington
and Beijing are taking halting steps toward
diplomatic cooperation on issues such as Iran's
nuclear program and the stand-off with North
Korea. The two have squared off over the future
of the Internet, the military balance in East
Asia, human rights and climate change. The
breadth of the relationship has led some
commentators to predict that China and the United
States will ultimately become a "Group of 2,"
setting the global agenda and sidelining the
Group of 20 which includes a broad range of
developed and developing countries.

Neither the United States nor China has embraced
this idea, a notion which alarmed some of their
traditional allies. But it is clear that their
uneasy partnership will continue to deepen and
grow more complicated as the leaders of the
world's largest economy and the world's fastest
growing economy seek to figure out the road ahead.

WHAT IS THE CURRENCY DEBATE ABOUT"

Many U.S. lawmakers have charged that China has
engineered its economic rise in part by keeping
its currency, the yuan, artificially low against
the U.S. dollar -- an accusation that Beijing
rejects. But the U.S. trade deficit with China is
projected to approach $250 billion this year, and
U.S. manufacturers say the yuan needs to
appreciate by as much as 25 percent to 40 percent
to level the playing field. Political debate over
the currency issue has complicated Obama's
efforts to smooth relations with Beijing.

While the White House has urged China to take
steps to allow the yuan to move more freely, it
has stopped short of officially labeling China a
currency manipulator, a designation which could
lead to possible trade sanctions. With U.S.
voters already frustrated by the struggling
economy and stubbornly high unemployment rate
near 10 percent, the China currency issue has
heated up as Obama's fellow Democrats brace for
possibly large losses in the Nov. 2 congressional
elections. The hearings this week at the House
Ways and Means, and Senate Banking committees,
could result in calls for tough new legislation
to punish China. But many analysts say this is a
risky approach, which could backfire if China
retaliates against U.S. exporters seeking to
expand in the world's most populous country. The
U.S. dollar itself is also a hostage to the
debate. China's huge $2.45 trillion pile of
foreign exchange reserves are almost two-thirds
in U.S. dollars, giving Beijing a powerful lever
over the dollar's value should it decide to make significant changes.

SIGN OF BROADER PROBLEMS"

Officials in both Washington and Beijing have
tried hard to isolate the currency issue, and
vowed it would not harm cooperation on other
fronts. There have been some signs that this is
working. The United States lobbied successfully
for China to back new U.N. sanctions against Iran
over its nuclear program, overcoming Beijing's
usual reluctance to support punitive measures
against one of its key oil suppliers. China has
also cooperated to some degree on North Korea,
although progress here has been slower.

Beijing -- the only major ally of Pyongyang's
isolated communist government -- has urged North
Korea to abandon its nuclear weapons and
supported U.N. sanctions over North Korea's
atomic violations. Beijing has also hosted
six-party talks with North and South Korea, the
United States, Japan and Russia in a bid to
resolve the impasse. Those talks stalled in 2009,
however, and the issue was further complicated in
March when a South Korean naval ship was sunk in
what both Seoul and Washington say was a North Korean attack.

Despite heavy U.S. pressure, China stopped short
of blaming North Korea for the incident and it is
unclear whether the talks can resume soon, as
Beijing hopes. China and the United States are
also divided over proposals to fight global
climate change -- another Obama priority -- with
Beijing saying the developed world should take
the lead in cutting carbon emissions.

WHAT ABOUT THE MILITARY DIMENSION"

As its economy boomed, China has also
significantly increased its military expenditure
-- raising fears of new frictions with the United
States particularly over Taiwan and the South
China Sea. Already boasting the largest army in
the world, China has also invested in modernizing
its navy and combat aircraft to project its
power, especially in the Pacific where U.S.
forces have long held sway. Chinese officials
point out that their defense spending is still
far lower than that of the United States, and
that it is not seeking confrontation. But there have already been rifts.

China froze military contacts with the United
States after the Obama administration in January
unveiled a potential $6.4 billion arms package
for Taiwan, which Beijing regards as a renegade
province. While U.S. officials hope this period
will soon be over, Taiwan remains a potential
flashpoint. China has also protested joint
U.S.-South Korean naval drills after the sinking
of the South Korean navy ship and has accused
Washington of meddling in the South China Sea,
where Beijing is involved in territorial disputes
with Southeast Asian nations over an area rich in energy and key to shipping.

WHAT HAPPENED TO HUMAN RIGHTS"

Disputes over human rights once dominated the
U.S.-China relationship, but appear to be
receding as a public issue. U.S. officials say
they still press China to respect the basic
political and religious freedoms of all of its
citizens, improve its legal system and end
repression of unrest in border areas Tibet and
Xinjiang. While Obama in February met Tibet's
exiled spiritual leader, the Dalai Lama, earning
sharp Chinese criticism, rights groups say his
administration has been less vocal than its
predecessors in pushing for political change.

But the human rights issue flared on a new front
this year: the Internet. China's Internet
controls thrust it into a dispute with search
engine giant Google<GOOG.O>, and Secretary of
State Hillary Clinton led U.S. criticism of
Beijing's censorship policies, which she said
were part of a "new information curtain descending across much of the world."

Analysts say the Internet row -- pitting a U.S.
vision of unfettered access against China's more
controlled approach -- is a sign of the deep
political and cultural differences which continue
to divide Beijing and Washington, and which
repeatedly lead the two giants to misunderstand each other.
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