Hu Jintao, Chinese President, Makes Crucial Visit To U.S.

BEIJING/WASHINGTON (By Sui-Lee Wee and Doug Palmer) - Chinese President Hu Jintao on Tuesday flew to the United States for a state visit buffeted before he even lands by senior U.S. senators demanding tough action against China for "manipulating" its currency.

Hu said earlier this week he would not accept U.S. arguments the yuan was undervalued.

The latest sparring over the currency underlines tensions over trade that will likely dominate Wednesday's summit in Washington between Hu and U.S. President Barack Obama. Their talks are expected to focus on a host of other thorny issues, from rebalancing the global economy to dealing with North Korea.

Analysts are calling the visit the most important by a Chinese leader in 30 years given China's growing military and diplomatic influence and its emergence as the world's second largest economy after the United States.

Investors and markets will watch for signs Hu and Obama can ease tensions after a rocky 2010, although many analysts have cautioned not to expect too much beyond friendly words and business deals worth potentially tens of billions of dollars.

"The peace and stability of the globe will depend on whether the two giants can come up with a cooperative paradigm for the prosperity of the world, or whether they will slip into a Cold War-like confrontation like the one between the U.S. and the USSR," the Joong Ang daily, a South Korean newspaper, said in an editorial.

At the top of the agenda in Washington will be trade and the yuan currency, which has risen nearly 3.5 percent against the dollar since Beijing ended its peg to the dollar in June, much less than demanded by critics in the United States.

Chinese Foreign Ministry spokesman Hong Lei said Beijing hoped U.S. lawmakers would not sour the tone ahead of Hu's arrival, repeating that China was committed to reforming its exchange rate system.

"A great many factors have proven that the renminbi's (yuan's) exchange rate policy is not the main cause of the China-U.S. trade imbalance," Hong said.

"We hope relevant U.S. lawmakers ... avoid harming the overall interests of China-U.S. economic and trade cooperation."

A group of U.S. senators said on Monday the United States had to pass legislation to punish China if it fails to allow its currency to rise in value rather than manage its rate, giving it an unfair advantage in global trade.

"(The message to Hu is) we are fed up with your government's intransigence on currency manipulation. If you refuse to play by the same rules, we will force you to do so," Democratic Senator Charles Schumer said during a conference call with two other senators on a proposed bill to prod China on the yuan.

Hu, in a written interview with The Washington Post and The Wall Street Journal this week, said China had taken steps toward a more flexible exchange rate policy.

China also says the United States should do more to rebalance the trade relationship. Chinese statistics showed a surplus in China's favor of $181 billion in 2010.

Chinese Commerce Ministry spokesman Yao Jian said the United States should lift curbs on exports, especially of high-tech goods, and make it easier for Chinese firms to invest there.

U.S. concerns over China's huge trade surplus, a stubbornly high U.S. unemployment rate and Obama's goal to double exports -- which could be fostered by a stronger yuan -- indicate anger over the yuan is likely to linger long after Hu's visit.

Any significant progress in Congress on passing a currency bill, however, may prove difficult given the White House preference to negotiate and Republican leaders who have voted against it in the past.

Both the Senate and the House of Representatives would have to approve the bill, and Obama sign it, for it to become law.


Given the tensions in 2010 over the yuan, trade, Taiwan, North Korea and human rights, some analysts predict ties between a newly assertive China and the United States will always be marked by wariness and outright suspicion.

The popular Chinese tabloid the Global Times, run by Communist Party mouthpiece the People's Daily, said both countries needed to "lay speculation to rest" about their relationship.

"The ambiguity of this influential relationship has seemingly unnerved the world," it said in an editorial.

"President Hu's visit will be placed under a global microscope. It is good timing for Washington to declare that China and the U.S. are not enemies today, and will not be in the future. This clarification will remove many uncertainties that may jeopardize global stability."

Underscoring Beijing's growing global influence, the Financial Times said China had lent more money to developing nations than the World Bank in the past two years.

China had lent at least $110 billion to governments and firms in developing countries in 2009 and 2010, surpassing the $100.3 billion by the World Bank, the newspaper said on Tuesday. The statistics were compiled from public announcements by banks, borrowers or China's government, it said.

(Additional reporting by Ben Blanchard, Wang Lan and Huang Yan in Beijing, editing by Jonathan Thatcher and Dean Yates)

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