US companies expand goals as China leader arrives

[January 18, 2011]  WASHINGTON (AP) -- U.S. companies have long demanded that China let its currency rise to make U.S. exports cheaper. But as President Hu Jintao visits Washington this week, U.S. companies are stressing other goals: Stopping the theft of intellectual property. And getting a fair chance to win government contracts.

No one expects any big breakthroughs. Instead, many U.S. companies hold out hope that the meetings between Hu and President Barack Obama will make it easier to reach long-term solutions to the major trade disputes dividing the world's two largest economies.

Hu sounded conciliatory on the eve of his trip.

"We both stand to gain from a sound China-U.S. relationship, and lose from confrontation," he said in responses to questions from The Wall Street Journal and The Washington Post.

But Hu also argued that the U.S. dollar's dominance of financial markets was a "product of the past," suggesting China would seek a more assertive role in the future. He passed up a chance to signal China's willingness to let its currency rise further against the dollar, a key U.S. demand.

"We should expect over time incremental progress," says Myron Brilliant, senior vice president for international affairs at the U.S. Chamber of Commerce.

The Chinese currency, the yuan, has long been the No. 1 irritant in U.S.-China trade relations. The U.S. and other countries charge that China keeps its currency artificially low. They say that gives Chinese exporters an unfair edge. A low-priced yuan makes Chinese products cheaper in the U.S. and U.S. products costlier in China.

The currency tensions have eased in recent weeks. In part, that's because the yuan has climbed 3.5 percent against the dollar since June. Its rise is even larger -- about 5 percent -- if inflation is taken into account.

And many economists think Beijing will push the yuan higher to fight resurgent inflation. That would reduce the cost of U.S. and other foreign products in China.

Yet Hu seemed to dismiss that idea in his comments to the U.S. newspapers. "Inflation can hardly be the main factor in determining the exchange-rate policy," he said.

Treasury Secretary Timothy Geithner declared China's currency "significantly undervalued" in advance of Hu's visit.

Obama is sure to raise concerns about the yuan's value in his discussions with Hu. But the Chinese are just as sure to avoid the appearance of bowing to foreign pressure.

"The Chinese are going to move fairly cautiously," said Nariman Behravesh, chief economist at IHS Global Insight, a private forecasting firm. "Our best bet is that Beijing will move the currency up by around 5 to 7 percent a year for the next two to three years."

America's trade deficit with the world, estimated at $500 billion last year, would drop by up to $120 billion if China let the yuan rise 20 percent over the next three years, according to the Peterson Institute for International Economics, a Washington think tank.

Such a change would create about a half million U.S. jobs, mainly in manufacturing, which typically pays above-average wages, the institute's economists are forecasting.

Three Senate Democrats plan to push legislation to penalize countries that manipulate their currencies and hurt U.S. exports. And Republican Sen. Lindsey Graham of South Carolina plans to reintroduce a bill to strengthen the Treasury Department's ability to counter currency manipulation.

"Working men and women are losing jobs because of unfair trade manipulation, and it's a politically tenuous place for the Republican Party to be seen as defending that," Graham told The Associated Press.

But dealing with the "currency will not be enough," notes former U.S. Trade Rep. Charlene Barshefsky.

U.S. companies are also bristling, for example, at a policy China adopted in 2009, called "indigenous innovation." The policy limits Beijing's purchases of foreign products to those designed in China.

U.S. firms see the policy as a ploy to force them to turn over their technology to China or be locked out of business with the government. More than 25 percent of U.S. companies that responded to a survey by the U.S.-China Business Council last year said they'd lost business because of the policy.

When it joined the World Trade Organization 9 years ago, Beijing promised to give foreign companies a fair chance to sell to the government. By most accounts, it hasn't done so.

"In terms of government procurement, every year is the year of the snail in China," said Frank Vargo, vice president for international affairs at the National Association of Manufacturers. "China is still a state-managed economy, and government procurement is enormous. China has simply not opened that market."

But Hu told the Journal and the Post that foreign companies' "innovation, production and business operations in China enjoy the same treatment as Chinese enterprises."

U.S. software companies say they're also being cheated out of billions in sales because Chinese companies and even government agencies illegally copy their programs, instead of buying them. Likewise, Hollywood has demanded that Beijing crack down on the widespread sale of pirated movie DVDs in Chinese markets.

"China remains behind the rest of the world" in safeguarding intellectual property, says Ken Wasch, president of the Software & Information Industry Association.

Rampant copying has hobbled China's efforts to attract investment from foreign technology firms. Companies say they fear their secrets will be stolen if they do high-level research in China.

In advance of Hu's visit, China has arrested more than 4,000 people to signal that it's committed to policing intellectual product theft. Commerce Minister Chen Deming has pledged to continue the campaign.

"The Chinese are moving in the right direction," Wasch says. "Should they be moving faster? Yes."

[Associated Press; By PAUL WISEMAN and MARTIN CRUTSINGER]

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