U.S.-China talks

U.S.-China talks may yield little major progress

4/30/2012 By Chris Oliver | MarketWatch 

Reuters The U.S. Embassy in Beijing

HONG KONG (MarketWatch) — China experts don’t expect high-level talks between Washington and Beijing this week to yield major progress on big issues, given a stymied policy backdrop, a fresh diplomatic row, and upcoming changes in Chinese and possibly U.S. leadership.
Some progress, however, could be forthcoming on issues involving further opening China’s market to U.S. companies, with banking and financial services cited by experts as a key sector to watch, analysts said.
One reason for U.S. optimism is recent statements by Chinese Premier Wen Jiabao, in which he urged
more competition in the banking sector and labeled China’s top state-owned banks as a monopoly that churns out unhealthy levels of profit among a handful of players.
China experts also cite trends already underway to open the mainland Chinese banking sector as part of ongoing structural reforms that also include the recent broadening of the yuan’s daily trading band, which in theory allows the Chinese currency to appreciate at a faster pace.
“The trend within China is for allowing foreign banks more room to maneuver,” Frank Lavin, a former U.S. ambassador to Singapore, now based in Hong Kong, told MarketWatch in a telephone interview.
“Chinese leaders have indicated that they believe Chinese banks don’t face enough competition and are too profitable,” said Lavin, who also previously served as U.S. undersecretary of commerce.
The talks were slated to begin Thursday in Beijing, marking the fourth round of the US.-China Strategic and Economic Dialogue. The negotiations are slated to include U.S. Treasury Secretary Tim Geithner and Secretary of State Hillary Clinton, along with respective Chinese co-chairs Vice Premier Wang Qishan and State Councilor Dai Bingguo.
IHS Global Insight chief economist Alistair Thornton said issues relating to banking regulation were topical, as China undertakes a review of how to reform the system, adding that international banks were under-represented in China and faced an adverse regulatory environment.
But Thornton said he didn’t see any major progress coming soon on China lowering entry barriers to foreign banks.
The few banking-sector reforms under consideration were already “well advanced” in sequestered policy units, Thornton said, and those were basically off-limits when it came to this week’s discussions with the U.S.
“I am not too sure that sitting bilaterally and having that discussion with the U.S. is going to advance banking reforms in China; that is something that is happening between different economic actors within the Chinese economic system,” Thornton said.
He said he wasn’t optimistic of a favorable outcome for international banks seeking to gain greater access to China. Nevertheless, he praised statements by Geithner on the issue, saying “it hit a lot of the right notes on what China should be focusing on.”
Geithner said last week that China should allow new firms to compete with the large state-owned banks and should increase in the ceiling on deposit rates. Read more on Geithner’s comments ahead of U.S.-China talks.
Diplomacy, politics weigh
The talks come amid what reports Monday were describing as a major diplomatic crisis between the two sides over a Chinese rights activist said to be seeking refuge at the U.S. Embassy in Beijing.
Chen Guangcheng, a legal activist opposed to abortions carried out under China’s one-child policy, escaped from house arrest last week and was believed holed up in the embassy, reports said.
The reports said the incident was certain to come up in the meetings, with a New York Times report from Washington citing an unidentified senior U.S. official as saying the Chinese government would raise the issue with Clinton.
The discussions were also likely to touch on longer-standing disagreements related to the Middle East, where China — along with veto-wielding Russia — blocked a U.N. Security Council draft resolution earlier this year, despite condemning the Syrian regime for violence against it citizens.
Other geopolitical issues likely on the agenda include topics such as nuclear proliferation concerns in North Korea, and financial and economic issues related to the euro-zone debt crisis.
But beyond current events, the talks will also take place under the shadow of China’s senior-level leadership transition, slated for this autumn, as well as U.S. elections in November that determine whether U.S. President Barack Obama gets a second term.
“Both sides will be viewing this as a very public discussion which is not wholly detached from domestic politics,” Thornton said.
Lavin said he expects the mood of the talks to be more towards consultation than negotiation, as China’s departing leaders abide by the protocol of policy continuity ahead of the upcoming Communist Party congress that will officially pick their successors.
Unlike in the West, where political change is synonymous with a shift in direction, the emphasis under China’s one-party system is “a change of individuals but not policies,” as it approaches its leadership handover, Lavin said.
Both Thornton and Lavin were speaking before the diplomatic tensions over Chen Guangcheng erupted.
Also complicating things, China appears to be undergoing its most serious political upheaval in decades, with the recent purge of senior Communist leader Bo Xilai seen by some commentators as evidence of rivalries among competing factions within the party.
“This augurs for a modest set of developments at this week’s meetings,” Lavin said. “I think it will be productive, but at the end of the day, I don’t think there will be a huge amount of progress.”
Yuan still an issue
Discussions on the value of the Chinese currency are likely to remain a source of contention this year, although the debate will likely be more subdued than in the past, amid signs that China’s export-led growth could be drawing to a close.
The U.S. has accused China of deliberately suppressing the value of its currency in order to boost the competitiveness of its export sector, resulting in large trade surpluses, although recent data indicate a cooling trend.
IHS’s Thornton said it would be increasingly difficult for the U.S. to press its case on the currency issue, “given that the [China] trade surplus has more or less vanished.”
The yuan eased against the U.S. dollar on Friday, even as China’s central bank set the midpoint of the yuan’s daily trading range against the greenback at a record low for the second straight day.
In over-the-counter trade, the dollar changed hands at 6.3102 yuan in early London trading hours Friday, a gain for the U.S. currency from its Thursday level of 6.3060 yuan.
In his remarks ahead of the meetings, Geithner praised reforms to Beijing’s currency mechanism, though he cautioned that the yuan needs to appreciate further against the dollar and other major currencies.
“It will provide China the independence and flexibility to respond to future changes in growth and inflation,” Geithner said Thursday in reference to Beijing’s efforts to gradually free up its currency. “And it will help the world economy, reducing a source of unfair competition with China’s trading partners.”
from