U.S. businesses are optimistic that vows of economic reform by Beijing will lead to an opening of China's financial system, and they are not worried diplomatic strains over a Chinese dissident will undermine high-level talks later this week.
Despite tensions over blind Chinese dissident Chen Guangcheng, who escaped house arrest last week and is believed to be under U.S. protection in Beijing, U.S. Treasury Secretary Timothy Geithner and U.S. Secretary of State Hillary Clinton are still heading to Beijing for annual meetings.
"The fact that the trip is going forward for both cabinet secretaries, I think is a sign that they are planning on doing some work," said Erin Ennis, vice president with the U.S.-China Business Council.
The council, which represents some 240 large companies that do business with China such as Dow Chemical, Ford Motor and Apple, wants China to reduce investment barriers and foreign ownership restrictions, among other things.
Over the past few months, the Chinese government has pledged to improve the climate for investors, admitted its banks are a monopoly, widened the trading band for its currency and said it was time to allow markets to set interest rates.
The vows of reform from top Chinese regulators and Chinese Premier Wen Jiabao have given U.S. businesses hope that Beijing will start addressing their long list of complaints and make it easier for them to invest and compete in China.
"We see this as a very significant and positive development for China and the United States," said Rob Nichols, the chairman of Engage-China, a coalition of 12 powerful trade and lobbying groups representing every part of the U.S. financial sector.
U.S. financial firms, which have long pressed for more access to China's state-dominated market, have sensed a change in Beijing's commitment to reform, and they want Geithner to seize the moment when he meets with top Chinese officials in Beijing on Thursday and Friday.
Expanding opportunities for U.S. companies, leveling the playing field for American firms and liberalizing China's finance sector top Geithner's list of topics to tackle at the fourth so-called Strategic and Economic Dialogue talks.
Engage-China traces Beijing's new-found reform commitment to a World Bank report released in February that warned that China's economic model was outdated and, if unattended, could precipitate a financial and fiscal crisis.
The report, requested by Beijing and co-authored by an influential Chinese government think tank, urged an overhaul in the structure of China's economy, in part by privatizing its state-owned enterprises, to keep income and productivity rising.
"There is some hope that we will see some greater liberalization that can benefit U.S. companies, particularly in financial services," said Jeremie Waterman, executive director of China policy at the U.S. Chamber of Commerce.
While the Chamber, the biggest U.S. business lobby, has been a frequent critic of the Obama administration, it says it is largely in synch with the White House on China policy and gives it credit for deepening ties with Beijing.
MARKET ACCESS THE FOCUS, NOT CURRENCY
There also appears to be some change in sentiment toward Beijing among traditionally hostile lawmakers in Washington, who are shifting their focus away from what they view as China's undervalued yuan currency and toward issues of market access.
It is not clear whether lawmakers have been influenced by Beijing's recent comments on financial reform, the wider yuan trading band or the fact that the currency has appreciated 40 percent against the U.S. dollar since China stopped pegging the yuan to the greenback in 2005.
But in letters to Geithner ahead of the talks, lawmakers have refrained from criticizing China's currency practices.
"Fair and competitive access to China's fast-growing middle class and business sector represents an enormous opportunity for American manufacturers, service providers and farmers," said one letter signed by an eclectic group of lawmakers that included Democrats, Republicans and ultra-conservative Tea Party representatives.
David Lampton, a professor at John Hopkins University and director of its China studies program, believes the rise in the yuan has helped take the issue off the table for lawmakers.
"It appears that market access and China's interest rate, the price of money broadly speaking, and subsidies are going to be the new focus of discussions in the future," he said.
Since 2005, U.S. lawmakers have repeatedly threatened legislation that would punish Chinese exports with tariffs designed to offset the effect of China's stockpiling of U.S. dollars to hold down the value of the yuan. A bill aimed at forcing China to allow its currency to appreciate more rapidly passed the Senate last year, much to Beijing's dismay.
Republican Senator Mike Johanns, who voted in favor of the Senate's currency bill, urged the administration to work with the Chinese government as it reforms and diversifies its financial sector.
"If they do, they will find allies" in the U.S. Congress, Johanns told Reuters. "As our economy continues to struggle and unemployment remains unacceptably high, expanding our economic markets is a common-sense way to spur job creation," he said.
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