Iran Nuclear NewsChina visit suggests thaw over Iran, Yuan

China visit suggests thaw over Iran, Yuan

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ImageWall Street Journal: China announced that President Hu Jintao will visit the United States in mid-April to discuss nuclear security, pointing to a potential thaw in one of the worst stretches of U.S.-China relations in recent memory.

The Wall Street Journal

Image 

By ANDREW BATSON

China announced that President Hu Jintao will visit the United States in mid-April to discuss nuclear security, pointing to a potential thaw in one of the worst stretches of U.S.-China relations in recent memory.

China's Foreign Ministry said Mr. Hu will attend the Nuclear Security Summit hosted by U.S. President Barack Obama on April 12 to 13, at which Mr. Obama is expected to continue pressing for tougher sanctions against Iran over its nuclear program.

Also Thursday, amid growing signs of headway in the U.S.-led sanctions push, Iran's chief nuclear negotiator traveled to Beijing for talks with China's top diplomats. China is the permanent member of the United Nations Security Council that is most reluctant to approve tougher economic sanctions against Tehran. (See article on page A6.)

The two moves, taken together, suggest that China and the U.S. may be reaching for a middle ground on two of the issues that have recently raised tensions between them—currency valuations and Iran.

Messrs. Obama and Hu spoke on the phone for an hour late Thursday, discussing Iran and G20 commitments to produce economic growth, the White House said. Mr. Obama "underscored the importance of working together to ensure that Iran lives up to its international obligations," the White House said in a statement after the call.

Mr. Hu's visit to the U.S. falls just days before the U.S. Treasury Department is set to issue a much-anticipated currency report that will include its judgment on China's currency policies. U.S. lawmakers have long argued that China's yuan, whose exchange rate is controlled by Beijing, is substantially undervalued against the dollar, harming international companies' efforts to sell goods to China and contributing to large trade deficits.

China says its currency is fairly valued. Last month, U.S. lawmakers from both parties pressed Treasury to name China a "currency manipulator," a designation that wouldn't result in specific penalties but would further inflame relations.

It wasn't previously clear whether Mr. Hu would attend the summit. China's leadership is sensitive to the prospect of being seen domestically as losing face overseas, so analysts said Thursday's announcement suggests that the Treasury might delay its report or opt not to use the label—or, possibly, make an announcement early to give the issue time to pass. Avoiding a public loss of face overseas could smooth the way, politically, for Chinese leaders to eventually move on the currency.

Andy Rothman, a former U.S. diplomat who is now a strategist for the brokerage CLSA Asia-Pacific Markets in Shanghai, said the announced visit "almost guarantees" that the White House has decided against officially pressing the issue.

"Naming China a manipulator two days after Hu leaves town would be perceived as an even bigger political insult than Israel announcing new housing in East Jerusalem during a visit by Vice President Biden," he said.

Analysts in the U.S. and China say the confirmation of Mr. Hu's visit could be a sign the two countries are closer to finding a way to resolve their differences.

"There is a possibility that the U.S. won't label China a currency manipulator as a return for China's compromise on the Iran issue, plus President Hu's visit to Washington for the nuclear security summit," said Shi Yinhong, a professor of international relations at Renmin University in Beijing. "I think it would be best for the U.S. Treasury not to name China a currency manipulator, as otherwise China will see another surge of anti-American sentiment among the public."

A U.S. Treasury spokesperson declined to comment on the issue Thursday.

White House spokesman Bill Burton, speaking to reporters Thursday, didn't directly respond to a question about whether Mr. Hu's participation in the nuclear summit would affect the U.S.'s decision on the Chinese currency issue. But he said the U.S. was "pleased" that China was attending the summit.

"As we've long said, we have an important relationship with China, one in which we have many issues of mutual concern, but also times we disagree," Mr. Burton said. "Despite those disagreements we can work together on issues like nuclear proliferation.''

Relations between the U.S. and China have had a rocky few months, with China reacting harshly to a U.S. decision to sell arms to Taiwan and Mr. Obama's meeting with the Dalai Lama.

Early Friday, the American Chamber of Commerce in China said U.S. companies doing business in China say they are increasingly running up against what they feel are discriminatory government policies.

While the companies surveyed were broadly bullish on China, they cited "inconsistent regulatory interpretation" as their biggest challenge in China, among other government-related obstacles. In recent years, the top concern had been difficulty finding management-level employees.

But Mr. Obama said this week that he wants a "positive relationship" with China, and Chinese officials also have agreed to participate in talks with other permanent members of the U.N. Security Council on possible sanctions against Iran for its nuclear program.

Gary Hufbauer, a former Treasury official under several administrations who is now a senior fellow at the Washington-based Peterson Institute for International Economics, said the challenge facing Mr. Obama was how "to thread the needle between gentle diplomacy, to get a cooperative response from China, and pressure from Congress."

Chinese officials have sent conflicting signals on their policy toward the currency, which has been held essentially fixed against the U.S. dollar since mid-2008. Central bank governor Zhou Xiaochuan has called that de-facto peg a temporary measure to cope with the crisis that will eventually be phased out. Other officials, including Premier Wen Jiabao, have said the yuan isn't undervalued and that the U.S. is excessively politicizing the issue.

Goldman Sachs analysts said Thursday that rising domestic inflationary pressures make a change in China's currency policy increasingly necessary, and that a move could come within three months if politics permit.

"We believe an opportune window will likely open up soon, especially if the U.S. could delay the release of the U.S. Treasury report until closer to the next U.S.-China Strategic and Economic Dialogue scheduled for the end of May," Helen Qiao and Yu Song said in a research report.

The Peterson Institute's Mr. Hufbauer said he believed Beijing could be waiting for an uptick in China's export figures to restart the slow appreciation of the yuan that China had undertaken starting in 2005, before the global financial crisis caused it to put the policy on hold.

—Kathy Chen and Sue Feng contributed to this article.

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