China and U.S. announce climate deal as Xi makes state visit to Washington

WASHINGTON (Reuters) - President Barack Obama hosted Chinese President Xi Jinping for his first U.S. state visit on Friday and the two announced a common vision for a global climate change agreement, a bright spot amid tensions over alleged Chinese cyber spying, Beijing's economic policies and territorial disputes with its neighbours.

Obama greeted Xi on arrival at the White House for an elaborate ceremony on the South Lawn, including a military honour guard and 21-gun salute. The two leaders then sat down for a formal summit.

U.S. and Chinese officials hoped to cast the talks in a favourable light by showcasing at least one area of cooperation ? the global fight against climate change. The two leaders unveiled a deal to build on a landmark emissions agreement struck last year, outlining new steps they will take to deliver on pledges made then to slash their greenhouse gas emissions.

The measures included an announcement by Xi that China will launch a national carbon cap-and-trade system in 2017 to help contain the country's emissions, which will build on seven regional pilot markets already operation in China. Such systems put limits on carbon emissions and open up markets for companies to buy and sell the right to produce emissions.

China's status as a developing country has meant it is under no obligation to promise carbon cuts, a situation that has irked U.S. politicians and other industrialized nations. For Obama, the deal with China strengthens his hand ahead of a global summit on climate change in Paris in December.

But the climate deal was likely to be overshadowed by major disagreements that underscore a growing rivalry between the world's two biggest economic powers.

Obama told Xi that the United States would continue to speak out over its differences with China.

"We believe that nations are more successful and the world makes more progress when our companies compete on a level playing field, when disputes are resolved peacefully and when the universal human rights of all people are upheld," he said in a welcoming speech, with Xi standing at his side.

On a more conciliatory note, Obama reiterated that the United States welcomes the rise of a China that is "stable, prosperous and peaceful."

Xi then spoke of a need to be "broad-minded" about the two countries' differences, to have "mutual respect" and "meet each other half-way" in order to improve relations.

As the two leaders spoke, dozens of pro- and anti-Xi protesters gathered near the White House grounds, waving flags, beating drums and shouting slogans.

FOR XI, POPE VISIT IS TOUGH ACT TO FOLLOW

Despite the ceremonial honours, the Chinese Communist leader, coming to Washington on the heels of Pope Francis, can expect nothing like the wall-to-wall U.S. news coverage given the popular pontiff, who drew adoring crowds wherever he went. On Friday, live television broadcasts of the pope's visit to the United Nations drowned out Xi's arrival at the White House.

High on the agenda in the talks is cyber security, a growing source of strain after high-profile cyber attacks on U.S. business and government databases blamed on Chinese hackers. Washington is considering sanctions against Chinese companies and individuals.

Visiting Seattle on the first leg of his trip, Xi denied involvement by the Chinese government and pledged to work with the United States to fight cyber crime. While Obama's aides say no formal agreement is likely, Chinese officials have suggested the possibility of a basic deal against cyber warfare.

Xi sought to reassure companies during his Seattle trip that he is working to improve the investment climate in China. His visit there included an announcement by Boeing that it had won $38 billion worth of orders and commitments for planes from China.

Obama is expected to press Xi to follow through on economic reforms and refrain from discrimination against U.S. companies operating in China. Some analysts believe Obama has more leverage due to China's slowing economic growth, which has destabilised global markets.

At the same time, the Obama administration is still at a loss about how to curb China's assertiveness in the South China Sea, where Beijing has continued to reclaim land for potential military use despite conflicting claims with its neighbours.

The two leaders held a private 2-1/2-hour dinner after Xi's arrival in the capital on Thursday to begin grappling with the issues.

On Friday, Obama will host a lavish black-tie state dinner where guests will dine on Maine lobster and Colorado lamb.

Calls for Obama to take a harder line with China have echoed from Congress to the 2016 Republican presidential campaign. But his approach will be tempered because the U.S. and Chinese economies are so closely bound.

(Additional reporting by Jeff Mason, Valerie Volcovici, Julia Edwards, David Brunnstrom; Writing by Matt Spetalnick; Editing by Frances Kerry)