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US, China Meet to Smooth Ties; Analysts Say Big Challenges Remain

Two senior U.S. advisers have wrapped up talks in Beijing with top officials that included a rare meeting with Chinese President Hu Jintao. While both sides stressed the importance of expanding cooperation and promoting healthy U.S.-China relations, analysts note that a wide range of challenges will continue to test ties - with the value of the Chinese currency and trade relations chief among them.

Chinese President Hu Jintao rarely meets with lower ranking visitors. Some analysts believe it is significant that Jintao sat down Wednesday with President Barack Obama's economic adviser Larry Summers and national security adviser Thomas Donilon.

China Center Director Kenneth Liberthal is with Washington, D.C.'s Brookings Institution - a government policy research group. He said, "That suggests that the discussion that had occurred during the previous several days in Beijing had gone very well.

"So that President Hu is now prepared to associate himself with a line of argument that says this is an extremely important relationship we should not overstress our differences, we should be able to work out things, tensions should be reduced and so forth," said Liberthal.

The White House said the talks touched on a wide range of topics, including North Korea, and Iran, as well as economic and security issues.

The meeting comes after months of discord and as the two countries continue to grapple with trade disputes. The lagging global economy also is translating into political pressure.

Liberthal noted that with some U.S. lawmakers running for re-election this November, and China already into its succession politics, the leaders of both countries are going to face increasing challenges.

"Given the combination of politics and economic concerns, both political leaders are going to have to be prepared to spend a fair amount of political capital to keep the trade relationship from slipping into a more contentious posture," said Liberthal.

In November, American voters will elect new legislators in both the House of Representatives and the Senate. Chinese President Hu Jintao is slated to step down from office in 2012.

Professor Patrick Chovanec of Beijing's Tsinghua University says trade relations are very tense. "People have been wondering for some time now whether there is going to be a trade war break out between the United States and China; well in many ways for the past several months there has been a low-level trade war."

Chovanec noted that every week or so there is another anti-dumping finding from one side or the other and sanctions being imposed.

Just this week, the U.S. Department of Commerce approved a preliminary anti-subsidy ruling against Chinese aluminum exporters, a move that could force Chinese firms in the field to withdraw from the US market.

Next week, U.S. lawmakers will meet to consider what government action is needed to address China's exchange-rate policy.

Asia analyst Gordon Chang is a columnist for Forbes magazine, who says there are bills in the U.S. House of Representatives and Senate that have a good chance of being approved. "I think it is not so much the pressure of the upcoming elections. I think it is going to have a lot to do with whether we see any substantial change in the Chinese exchange rate.

"It looks fairly likely that if there is no change in the value of the RMB (Yuan), there is going to be some legislation that will come out of Congress. I do not know if President Obama will veto it or not, but this going to be a very high stakes game," said Chang.

Patrick Chovanec of Beijing's Tsinghua University said that while it is unclear whether U.S. and Chinese officials reached any new agreements during their meetings, both sides agree on the importance of the issue.

"I am not so sure that there is a substantive agreement on this, but I think at least there is a recognition that it is an issue that is coming to a boil, and needs to be talked through between the two countries," said Chovanec.

Liberthal noted that while it appears China is unwilling to move on the currency issue, it is likely that it will make efforts in other areas, including resuming military-to-military dialogues.

China sidelined military-to-military dialogues earlier this year after Washington announced a new arms deal with Taiwan.

But analysts said if the relationship continues to sour, it not only will stall any improvement in U.S.-China ties, but also could further delay an expected visit by Mr. Hu to the United States.