China looms as key challenge on Obama's Asia tour

Thu Nov 12, 2009 10:33am EST

By Caren Bohan

WASHINGTON (Reuters) - President Barack Obama leaves for Asia on Thursday with the U.S. economy, jobs and a yawning trade deficit with China looming large on his agenda.

Global climate change, the North Korean and Iranian nuclear disputes and Obama's review of his Afghanistan strategy are also major topics for his talks with the Chinese and other officials on the first trip of his presidency to Asia.

In an interview with Reuters this week, Obama described China as a "vital partner, as well as a competitor."

But he warned of "enormous strains" in relations between the world's two most powerful nations if economic imbalances between them were not corrected.

Those imbalances -- America's excessive consumption and borrowing, facilitated by China's aggressive export strategy and purchases of U.S. debt -- are seen by many as a major cause of the boom and subsequent bust in the global economy.

Obama's nine-day tour will begin in Tokyo and includes a stop in Singapore for the Asia-Pacific Economic Cooperation summit, followed by visits to Shanghai, Beijing and Seoul.

Obama said he would talk to the Chinese about revaluing their currency, the yuan, as well as encouraging Chinese consumers to spend more and opening Chinese markets further to U.S. goods.

With the U.S. unemployment rate now at 10.2 percent, the Obama administration hopes an emphasis on building export opportunities will play well at home.

Giving Obama a possible boost ahead of the trip, China signaled on Wednesday it might allow appreciation of the yuan, saying it would consider major currencies -- not just the dollar -- in guiding the exchange rate.

U.S. manufacturers have long complained that Beijing artificially holds down the yuan's value to make Chinese exports cheaper and U.S. goods more expensive for Chinese consumers.

But Obama may face some pushback from China and other countries who worry that Washington's drive for economic cooperation with Asia may be too one-sided.

Beijing is upset over U.S. moves to slap tariffs on Chinese tires and steel pipes, while South Korea and other countries harbor doubts over whether Obama, elected with strong labor union support, is committed enough to a free-trade agenda.

The Asia tour also comes as Obama juggles many pressing domestic issues, including his drive to pass healthcare reform and climate change legislation, and nears the final stages of a decision on whether to send more U.S. troops in Afghanistan.

SEEKING DEEPER TIES

One of Obama's main messages will be a promise to put a high priority on engagement with the dynamic Asia-Pacific region, an area of the world where he has personal connections, having grown up in Hawaii and Indonesia.

"The president is the first president of the United States really with an Asia-Pacific orientation," said Ben Rhodes, deputy national security adviser for strategic communications. "He understands that the future of our prosperity and our security is very much tied to this part of the world."

Forging an effective working relationship with Beijing will be crucial to any effort to deepen U.S. engagement in Asia.

"I certainly think this administration differs from its predecessors in its apparent recognition of the ascendancy of China and the ascendancy of Asia," said David Rothfkopf, a business consultant and former U.S. official.

"The sign of maturity in the relationship with China will be balancing this sense of ascendancy and a sense of partnership with the recognition that there are real differences and that the partnership will survive the disagreement."

The Obama administration's approach toward China, known as "Strategic Reassurance," builds on a Bush administration effort to ease mistrust between Washington and Beijing and encourage China to become a responsible stakeholder in global affairs.

Obama has been accused by some critics of giving short shrift to human rights issues but he said he would bring up the subject in his meetings in China.

Underscoring the importance placed on the three-day China visit, Obama's itinerary includes a formal state dinner, a series of meetings with President Hu Jintao and Premier Wen Jiabao and a dialogue in Shanghai with Chinese youth.

Japan will be another crucial leg of Obama's trip. Some in Tokyo and in Washington worry about a drift in relations between the two staunch allies.

Prime Minister Yukio Hatoyama campaigned on a pledge to set a more independent course from Washington and frictions have arisen over plans to relocate the U.S. military base on Japan's Okinawa island.

Many Japanese also wonder whether historic rival China's growing economic and military clout will affect relations between Washington and Tokyo, which mark the 50th anniversary of their security alliance next year.

Obama plans to make a major speech in Tokyo on Saturday in which he will discuss his view of U.S. engagement in Asia and reaffirm the strength of the U.S.-Japan alliance.

(Editing by John O'Callaghan)

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