NEW YORK (Reuters) - U.S. President Barack Obama urged Chinese Premier Wen Jiabao on Thursday to take rapid steps to address a dispute over the value of China's currency and made clear the United States would protect its economic interests.
A two-hour meeting between Obama and Wen on the sidelines of the U.N. General Assembly was dominated by a lengthy, candid discussion about an issue that has been a persistent irritant in U.S.-Chinese relations and now has the attention of U.S. lawmakers.
The talks between Obama and Wen came as U.S. lawmakers appeared to move closer than ever to acting on long-standing threats to pass legislation that would penalize China for keeping its currency artificially weak.
Critics inside and outside Congress say China deliberately undervalues its currency by as much as 25 percent to 40 percent to give Chinese companies an unfair trade advantage, hurting U.S. exports and employment.
Both Obama and Wen spoke in diplomatic niceties in their public remarks at a picture-taking session as their talks began. Obama stressed that both countries must work to achieve balance and sustained economic growth and Wen said, "Our common interests far outweigh our differences."
During their private talks, Obama said the currency issue was the "most important issue" of their meeting, said Jeffrey Bader, the senior National Security Council official for Asia. He said there was a far more intensive discussion of the topic than in their previous meetings.
Bader said Obama "made clear that we're expecting to see more action, more significant movement" on China's yuan in the months ahead and noted that the Obama administration had authorized a couple of complaints about Chinese trade practices through the World Trade Organisation.
"So the president made clear that, through that and in his meeting, that he's going to protect U.S. economic interests and that we look for the Chinese to take actions. If the Chinese don't take actions, we have other means of protecting U.S. interests," Bader said.
Wen told Obama that China would press ahead with reforming exchange rate rules for the yuan, Bader said.
"Premier Wen did reiterate the Chinese intention to ... continue with reform of their exchange rate mechanism," he said.
Wen's delegation did not speak to reporters after the meeting, but during the picture-taking session Wen told Obama he believed all differences between the United States and China could be resolved through dialogue and that he had a constructive attitude.
Wen and Obama also discussed tensions between China and Japan in the East China Sea.
"It's not in our interest to see these countries in this kind of a dispute," said Bader, echoing Secretary of State Hillary Clinton's call for a peaceful resolution in her meeting with Japanese Foreign Minister Seiji Maehara.
Obama stressed to Wen the "U.S. interests of freedom of navigation in the South China Sea" and the importance of peaceful resolution of maritime territorial disputes between China and its southern neighbours, said Bader, who added the issue would be discussed on Friday when Obama meets leaders of the Association of Southeast Asian Nation countries.
China's central bank said in June it would loosen a peg against the dollar and let the yuan fluctuate more freely. It has since risen 1.8 percent against the dollar.
But the slow appreciation of the yuan makes it an easy target for U.S. politicians eager to address high unemployment in an election year.
In a speech on Wednesday night, Wen rejected any link between the level of the yuan, also called the renminbi, and a U.S. trade deficit with China that annually exceeds $200 billion.
"The main reason for the U.S. trade deficit with China is not the renminbi exchange rate, but the structure of trade and investment between the two countries," he told U.S. executives and China experts in New York.
HOUSE COMMITTEE SETS CURRENCY VOTE FRIDAY
A U.S. House of Representatives committee has scheduled a vote for Friday on a China currency bill that would treat China's "undervalued" currency as an export subsidy, and allow the U.S. Commerce Department to impose countervailing duties on Chinese products to offset the undervaluation.
Bader said the Obama administration did not take a position on the currency legislation, beyond wanting to ensure it was consistent with international obligations.
"The president made no commitment to Premier Wen about this legislation," he told reporters.
Pushing back against the U.S. pressure, Wen said on Wednesday that China also had big job considerations and the 20 percent appreciation of the yuan demanded by U.S. lawmakers would cause many bankruptcies in the Chinese export sector, where firms operate on thin margins.
A sharp appreciation of the yuan would not bring jobs back to the United States because American firms no longer make the labour-intensive products China exports, Wen added.
Prospects for action in the Senate, which would also have to approve legislation, are uncertain. Key senators have said time may be too tight since lawmakers hope to leave Washington shortly to campaign for the November 2 elections.
"Both Democrats and Republicans from industrial districts need a vote on this before they go home in November, and that's ... I think what's really driving this issue," said Lloyd Wood, spokesman for the Fair Currency Coalition, an alliance of manufacturing and labour groups that backs the currency bill.
"It's never been more clear to me that China responds to pressure than over the past week," said Scott Paul, executive director of the Alliance for American Manufacturing. "It's the one currency in the world that's pegged to political pressure."
But Stephen Orlins, president of the National Committee on U.S.-China Relations, said that if the bill passes "and creates a trade war, we will have shot ourselves in the foot."
The U.S. Treasury Department said it would "carefully examine" any proposals put forward by Congress.
A U.S. Trade Representative's office spokeswoman said it was reviewing whether the House bill was consistent with World Trade Organisation rules.
Obama invited Chinese President Hu Jintao to Washington for a state visit next January and Hu accepted, Bader said.