China's president talks tough on currency before US visit

WASHINGTON – President Hu Jintao issued veiled criticism Sunday of US monetary policy before a state visit to the United States seen as a chance for China's leader to shore up his political legacy.

Responding to written questions from The Wall Street Journal and The Washington Post, Hu came out fighting on by far the most contentious economic issue affecting relations between the two world powers: currency.

Highlighting the dollar's dominance, he implicitly criticized the Fed's recent decision to pump 600 billion dollars into the US economy, a move attacked by some as coming at the expense of other countries' exports.

"The monetary policy of the United States has a major impact on global liquidity and capital flows and therefore, the liquidity of the US dollar should be kept at a reasonable and stable level," Hu said.

While dubbing the international currency system a "product of the past," he suggested the dollar would nevertheless remain the reserve currency of choice for some time as it would be "a fairly long process" before China's currency, the yuan, would become a player.

Despite the global success of Chinese exporters, the yuan plays only a minor international role due to restrictions on exchanging it for other currencies. Official controls make it difficult to move the yuan in and out of China.

President Barack Obama is likely to pressure Hu on the yuan. Critics say Beijing intentionally undervalues its currency to boost exports and many here are angry as they belive that comes at the cost of American growth and jobs.

Three Democratic senators have scheduled an announcement on Monday of new legislation "to vigorously address currency misalignments that unfairly and negatively impact US trade," to coincide with Hu's visit.

The Chinese leader, who is expected to step down as president and general secretary of China's Communist Party in 2012, arrives on Tuesday night in Washington for what will be his first and last state visit to these shores.

Former president George W. Bush reserved state visits for leaders of democracies, but Obama will welcome Hu at the White House with the full pomp of a 21-gun salute and a black-tie dinner after Oval Office talks Wednesday.

In a wide-ranging and unusually frank speech on Friday, US Secretary of State Hillary Clinton urged China to free dissidents and improve treatment of minorities, pledging not to shy away from disagreements during the visit.

There are several bones of contention between the two economic giants, not least of which is the incarceration by Beijing of dissident Liu Xiaobo, Obama's successor as the Nobel Peace Prize laureate.

Unsurprisingly, Hu touched neither on this nor on a host of other thorny issues such as: American arms sales to Taiwan, the Dalai Lama's US visit, Internet freedom, and naval rivalries in the Pacific.

"There is no denying that there are some differences and sensitive issues between us," he conceded.

Three days before a visit seen as an opportunity for Hu to seal his legacy as a good steward of the vital US-China axis, the tenor of his message was overwhelmingly conciliatory and positive.

"We both stand to gain from a sound China-US relationship, and lose from confrontation," he said.

"Both sides should keep to the right direction in the development of our relations, increase exchanges, enhance mutual trust, seek common ground while reserving differences, properly manage differences and sensitive issues and jointly promote the long-term, sound and steady development of China-US relations."

Aware of the diplomatic pitfalls ahead, the US and China have painstakingly prepared Hu's visit.

The January 18-21 trip will include a state dinner at the White House on Wednesday evening, talks with US lawmakers and a stop in Chicago.

Senior officials have shuttled between the two capitals including US Defense Secretary Robert Gates, who traveled to China last week to restore military ties suspended one year ago by Beijing.

Gates was meanwhile greeted by the maiden flight of China's first stealth fighter jet -- a sign of the increasingly sophisticated capability of Beijing's military.

Beijing will be keen to avoid hiccups like the one during Hu's last visit to the United States in April 2006 when a member of the Falungong spiritual movement, which is banned in China, unfurled a banner on the White House lawn.