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China-US Strategic and Economic Dialogue opens in Beijing

From left, Treasury Secretary Jacob Lew, Secretary of State John Kerry and President Xi Jinping in Beijing on Monday. Photo: AP

China and the US on Monday kicked off their annual strategic dialogue in Beijing with Chinese President Xi Jinping calling on the two nations to "manage their differences" to avoid any "major disturbance" in bilateral ties.

This year's China-US Strategic and Economic Dialogue (S&ED) is the last for the Obama administration, leaving little time for major initiatives.

Conciliatory tone

With ties between the two powers strained over a series of issues, Xi took a conciliatory tone in his opening statement to the annual dialogue set to end on Tuesday.

Xi said that the nations should cultivate mutual trust and cooperation and take part in regular talks.

"The fundamental thing is the two sides should stick to the principles of no conflict or confrontation, mutual respect and win-win cooperation," he said.

Xi acknowledged inevitable "differences and sensitive issues" between the two major powers, citing contrasting histories, societies and cultures. "There is no reason to be scared of having differences, the key is not to adopt a confrontational attitude towards any differences," he said.

"Some differences can be solved through endeavor and both sides should work harder to solve them," he said. "Some differences cannot be solved at the moment and both sides should take each other's actual situations into consideration and take a constructive approach."


Officials from both nations are using the dialogue to press each other on economic issues.

The Chinese Finance Minister Lou Jiwei jabbed back at complaints from US Secretary of the Treasury Jack Lew that China's glut of factories making mountains of steel, aluminum and other products was overwhelming foreign markets and makers.

Lou suggested that foreign officials should curb their complaints about industrial production surpluses because their governments had cheered on China's investment spree during the global financial crisis that began in 2008. That spree helped create the production gluts now worrying policy makers in Beijing and, increasingly, around the world.

"At that time, the whole world applauded and thanked China," Lou said. "Now they're saying that China has a production glut that is a drag upon the world. But what did they say at the time?"

Lou was responding to questions about Lew, who has complained that China's huge surpluses were being sold so cheaply on international markets that they were distorting the global economy.

Lew emphasized those worries on Sunday at a university forum in Beijing, and he raised them again at the opening of the talks.

"The United States supports efforts to reduce excess capacity and leverage in the economy," Lew said. "Excess capacity has a distorting and damaging effect on global markets," he said. He added that defusing the problem was "critical to the function and stability of international markets."

China's exports of cut-price steel, aluminum and other products have become a contentious international issue, prompting anti-dumping tariffs and feeding into the American presidential race. DonaldT rump and Bernie Sanders have both argued in their campaigns that blue-collar workers have lost jobs because of skewed trading rules.

This year, the US Department of Commerce began putting heavy tariffs on some Chinese steel makers for selling below cost.

Lou said that there was nothing wrong with Lew raising the excess capacity problem in the talks. But he suggested that Lew had his eyes on critics back in the US. “They're under pressure domestically," he said.

Lou said that the Chinese government was now "squarely facing up" to the enormous amounts of unwanted industrial output. Beginning this year, Xi and other leaders said that cutting that output was a crucial part of their program to reinvigorate growth.

South China Sea

Referring to the growing divisions between the two nations over the South China Sea where China has embarked on a controversial program of reclaiming land on reefs in disputed waters that are also claimed by several countries including the Philippines and Vietnam, Xi said that the broad Pacific Ocean should not become an arena for rivalry, but a big platform for inclusive cooperation.

"China and the US have extensive mutual interests in the Asia-Pacific region. We should hold regular dialogues, cooperate, cope with various challenges and work hard to cultivate a mutual, instead of exclusive, circle of friends between the two countries," Xi said.

US Secretary of State John Kerry said that Washington took no position on the claims of various parties in the maritime disputes. "The only position we've taken is: let's not resolve this by unilateral action; let's resolve this through rule of law, through diplomacy, through negotiation. We urge all nations to find a diplomatic solution, rooted in international standards and rule of law," Kerry said.

Tensions have risen further after reports last week quoting Chinese military sources as saying Beijing might consider declaring an Air Defense Identification Zone in the South China Sea, further asserting its sovereignty. Kerry said at the weekend that such a move would be a provocative and destabilizing act.

A senior Chinese military official said at a security conference in Singapore this weekend that China was not afraid of trouble in the region.

"We do not make trouble, but have no fear of it," said Sun Jianguo of China's Central Military Commission, in what state media called a "strongly worded speech". He said that Beijing would not "allow any infringement upon its sovereignty and security interests, or stay indifferent to the irresponsible behavior of some countries in and around the South China Sea."

And a commentary in the official Global Times newspaper on Monday hit out at what it called the "arrogance of the US Pacific Fleet", saying the US's "unbridled behavior" had given Chinese people a sense of "insecurity" and "reminded the Chinese that our military strength is still weak and we must develop our own strategic military capability to deter the US.

'Relationship still positive'

"The overall relationship is still positive, there is still a lot of cooperation, including on climate change, global nuclear issues and finance," Professor Tao Wenzhao of the Institute of American Studies at the Chinese Academy of Social Sciences, told International Business Times recently.

But he said that there was real anger in China over the South China Sea dispute, which was likely to "become a long-term issue".

Zhao Minghao, a researcher at Renmin University in Beijing, wrote in the Global Times on Monday that "the most important bilateral ties in the world shouldn't be dominated by the South China Sea dispute".  And he noted that contacts between the two countries had increased in recent years, with China due to join the Rim of the Pacific Exercise, a naval drill led by the US, later this month.

Robert Manning, a senior fellow at the Brent Scowcroft Center for International Security at the Atlantic Council, wrote in an article published by the Global Times on Monday that Beijing should cooperate on trade issues, including greater access to its markets, saying "China is unlikely to find a more cooperative US president than Obama".

Zhao Minghao, a researcher at the China Centre for Contemporary World Studies, said, "Beijing and Washington should set up a new mechanism for risk control as soon as possible in case of emergencies that could upset the entire world."

But Shi Yinhong, an international relations professor at Renmin University, said that on major issues such as the South China Sea, BIT and North Korea, the differences between China and the US were too big to overcome. "Overall the situation is grim," he said. "I wouldn't think we should expect any major breakthrough."

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