Bloomberg News

Obama Puts Pressure on China as U.S. Asserts Asia Influence

November 17, 2011

(Updates with Obama remarks at opening of meeting in seventh, eighth paragraph. See EXT2 for news on the APEC summit.)

Nov. 13 (Bloomberg) -- President Barack Obama used his role as host of the Asia-Pacific Economic Cooperation summit to pressure China on currency and intellectual property rights while telling voters that nations in the region are counting on U.S. leadership.

Obama told Chinese President Hu Jintao yesterday that the American public and businesses are growing “increasingly impatient and frustrated” with the pace of progress in relations between the two nations, said Michael Froman, White House deputy national security adviser. Hu told Obama that a large appreciation of the yuan won’t solve U.S. problems, a statement on the Chinese Foreign Ministry’s website said.

Obama’s strong language came only hours after he announced the U.S. and eight other nations will join in forging an Asia- Pacific trade accord within the next year, a move he said demonstrates that “American leadership is still welcome.”

With the APEC summit followed by stops in Australia and Indonesia, Obama is underscoring his administration’s pivot toward Asia after a decade in which U.S. attention was focused on wars in Iraq and Afghanistan. The outreach is spurred by the rising commercial importance of the region and by China’s mounting economic and military power.

At a session yesterday morning with company executives moderated by Boeing Co. Chief Executive Officer Jim McNerney, Obama said the U.S., the world’s biggest economy, views the Pacific rim as the driver of future economic growth and intends to use its influence in the region.

Pacific Power

“The United States is a Pacific power and we are here to stay” Obama said. “There’s no region in the world that we consider more vital than the Asia Pacific region.”

He repeated that theme this morning as he opened a working meeting of leaders from the 21-member forum.

“The Asia Pacific region is absolutely critical to America’s economic growth,” he said.

The U.S. this year has exported more to the Pacific Rim than to Europe, according to the Commerce Department. Last year, exports to the region supported 850,000 U.S. jobs, the State Department says.

Obama also told the executives, representing companies in the U.S. and Asia, that he wants China to “play by the rules” and that the U.S. “can’t be expected to stand by” without getting reciprocity from China on currency, trade and protection of intellectual property.

Political Issue

China’s policies also have become an issue in U.S. politics. The Senate approved a bill last month that would let manufacturers seek duties on Chinese imports if they prove they were harmed by manipulation of the yuan. Tough talk on China has become a staple for many of the Republicans seeking their party’s nomination to run against Obama next year.

At a debate last night in South Carolina, Former Massachusetts Governor Mitt Romney said he would make a case against China at the World Trade Organization for manipulating its currency in order to artificially lower prices and run a trade surplus. The U.S. had a $273 billion trade deficit with China last year.

Still, China, which is also the biggest holder of U.S. debt, has made steps on its currency. The yuan has gained about 8 percent against the dollar in nominal terms since the country ended a two-year peg to the U.S. currency in June, 2010. In real terms the gain has been more than 10 percent, because inflation is higher in China than in the U.S.

The yuan rose 0.06 percent to 6.3424 in Shanghai on Nov. 11, according to the China Foreign Exchange Trade System.

Business Climate

John Rice, the General Electric Co. vice chairman who oversees the company’s international operations, said in a Nov. 10 interview in Honolulu that China is making progress improving the climate for foreign businesses such as GE.

He cited a decision by the government to put off new rules encouraging indigenous innovation that international companies said could shut them out of an annual state procurement market worth as much as $1.1 trillion.

“I think the playing field is improving all the time,” Hong Kong-based Rice said. “The government listens when people recommend opportunities for improvement.”

Obama took a less confrontational public stance when he began a bilateral meeting with Hu yesterday in Honolulu. He said Americans should be “rooting for China to grow” because it would benefit both nations, by raising living standards in China and providing new markets for U.S. companies.

Growing Relationship

“Although there are areas where we continue to have differences, I am confident that the U.S.-China relationship can continue to grow in a constructive way based on mutual respect and mutual interests,” Obama said.

In private, Obama “made it very clear” the U.S. wants to see greater progress and cooperation on those issues, Froman said.

White House press secretary Jay Carney said Obama was “very direct” with Hu and told him the U.S. frustrations exist broadly across the political spectrum.

The U.S. trade deficit and unemployment are not caused by the yuan exchange rate and a “large” appreciation in the currency won’t solve U.S. problems, Hu told Obama, according to the Chinese Foreign Ministry statement.

“China’s foreign exchange policy is a responsible one,” Hu told Obama, according to the statement. The country will “continue reforming its exchange rate mechanism.”

Broader Concern

White House deputy national security adviser Ben Rhodes said Obama also stressed that “this is not simply a matter of the United States” raising concerns and that China is risking the collective pushback of other countries in the region and around the world.

In his own speech to business executives, Hu said China will seek to boost imports in part to help stimulate economies around the world.

“We must be firmly committed to maintaining growth and promoting stability,” Hu said. China will “focus more on increasing imports while maintaining a stable level of exports.”

--With assistance from Michael Forsythe in Honolulu, Chua Baizhen in Beijing and Peter Hirschberg in Hong Kong. Editors: Joe Sobczyk, Peter Hirschberg

To contact the reporters on this story: Margaret Talev in Honolulu at mtalev@bloomberg.net; Julianna Goldman in Honolulu at jgoldman6@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net


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