U.S. and China talks aim to keep irritants in check

WASHINGTON (Reuters) - The United States and China launched two days of talks on Monday emphasizing common ground as they prepared to discuss irritants in their relations ranging from currencies and debt to human rights.

The annual Strategic and Economic Dialogue gives the world's two biggest economies a chance to manage, if not resolve, their often tense policy differences and both sides pledged to use the talks to that end..

"Only by discussing a diverse range of topics, including sensitive ones, can we help mitigate the risk of misperception and miscalculation," U.S. Vice President Joe Biden said, as he underscored Washington's concern over a recent crackdown on dissent by Beijing.

In a 45-minute opening session both sides struck familiar themes with U.S. officials pressing Beijing on currency and human rights, while China -- the United States' largest creditor -- hinted at misgivings over U.S. fiscal policy.

U.S. Treasury Secretary Timothy Geithner acknowledged Washington has to get its debts under control, but also used his brief remarks to renew a call for China to rely less on exports and more on spending at home to fuel growth.

The reforms we must both pursue to meet these very different challenges are not in conflict, and the strengths of our economies are still largely complementary," he said.

This year's meeting of top officials from both capitals takes place barely a week before the United States is likely to hit a legally set limit on its debt. The U.S. Treasury has said it could take action to ensure the government continues to meet its obligations beyond May 16 but has warned it will run out of manoeuvring room on August 2.

Ahead of the talks, Chinese officials made clear they were monitoring negotiations between the Obama administration and Republican lawmakers on competing proposals for tackling a projected $1.4 trillion (860 billion pounds) budget deficit.

"We hope that the United States in its fiscal clean-up will be able to adopt effective measures based on President Obama's proposal," Chinese Vice Finance Minister Zhu Guangyao told reporters in Beijing on Friday.

U.S. officials have laid out a menu of demands for Beijing that include more access for American firms, faster implementation of financial market reforms. Washington is also pressing for higher Chinese interest rates to temper inflation and to give Chinese consumers more spending power.

MANAGING DIFFERENCES

With the U.S. economy growing only modestly after the 2007-2009 financial crisis, and Washington still reliant on selling its debt to China, both countries have a stake in keeping relations on an even keel to foster global recovery.

No breakthroughs are likely at the talks, but they may defuse some of the potential for flare-ups over debt and other issues, said Jin Canrong, a professor of international relations at Renmin University in Beijing.

"There are structural conflicts in the China-U.S. relationship," Jin told Reuters. "Although this year relations have had a good start, the problems are still there and could burst out at any time and lead to a step back in relations.

At the start of the meeting, both Biden and U.S. Secretary of State Hillary Clinton expressed strong misgivings at a recent crackdown on dissent by Beijing.

Biden characterized it as a "vigorous disagreement" and pledged the Obama administration would be unrelenting in pressing for greater respect for human rights.

During the opening ceremony, Chinese Vice Premier Wang Qishan conceded there were differences, but said the two countries had an "economic interdependence" that made it essential for both to find common ground.

"No side can do without the other," he said.

CURRENCIES AND TRADE IN FOCUS

Ahead of the talks, Geithner said letting the yuan appreciate more rapidly would allow the Chinese to better control inflation and U.S. officials said he would also urge China to let official interest rates rise more rapidly.

"We're going to encourage China to move more quickly in lifting the ceiling on interest rates on bank deposits in order to put more money in Chinese consumers' pockets," Treasury's senior coordinator for China, David Loevinger, told reporters at a briefing last week.

The U.S. Treasury delayed a scheduled April 15 report on currency practices of key trade partners that, in theory could have labelled China manipulator and opened the way to imposing trade measures against it. In practice, Treasury has opted to use persuasion to try to convince Beijing to let the yuan rise as an inflation-fighting tool.

China, flush with cash now as holder of the world's largest foreign reserves that are about two-thirds dollars, wants to ensure its firms are not discriminated against in the United States.

Analysts caution that dramatic outcomes are unlikely from this week's talks, unsurprising as the two leading economies enter a more mature relationship.

"The focus has shifted to making methodical if slow progress rather than on resolving major conflicts or arriving at dramatic breakthroughs," said Eswar Prasad, a senior fellow at Washington's Brookings Institution.

(Additional reporting by Chris Buckley and Doug Palmer, editing by Sandra Maler)

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