Editor's note: If the 3rd Sino-US Strategic and Economic Dialogue is to deliver on its objective of 'meaningful and sustained progress', the US must stop blaming China and value of the yuan for its economic woes and address the real issues.

Fu Mengzi

China-US dialogue a serious business

The third Sino-US Strategic and Economic Dialogue (S&ED) is of special importance because it is being held at a turning point in history.

After their relations suffered a setback last year, China and the United States reaffirmed their "cooperative partnership of mutual respect" during President Hu Jintao's state visit to the US in January. The S&ED is expected to fulfill the two sides' mutual promises and propel their relations forward.

As the two biggest economies, the US and China will not only concentrate on bilateral relations during the dialogue, but also discuss global affairs, because the world economy is still recovering from the financial crisis and several key regions are facing political and social instability.

Among the issues on the S&ED agenda will be the global recovery, economic balance, bilateral strategic cooperation and international monetary system reform. The following issues, however, should be the priority.

Trade imbalance is likely to be the top issue. Though the Sino-US trade volume reached $300 billion last year and China had a $181.3 billion surplus, there were indications of the US resorting to trade protectionism.

The problem is China alone does not get the surplus. It is distributed along the entire global industrial chain. A report on The Washington Times on Jan 25, 2011, said an iPhone costs more than $600 but China, as the manufacturing base, gets less than $10 from it as profit. Just like with most modern products, the two ends of the industrial chain - research and development (R&D), and sales and service - take the lion's share of the profit.

Therefore, the US cannot balance its trade with China by resorting to protectionism. To strike a balance and boost its exports, the US has to loosen its technology import limitations and recognize China as a market economy.

The yuan's exchange rate is another hot topic. Many US politicians blame the "undervalued yuan" for the trade imbalance with China and have been pressing China to revaluate its currency faster.

But the yuan is not the cause of the US' economic decline. Japan raised its currency dramatically in 1985 under US pressure. Despite that US-Japanese trade imbalance continued, because the US could not substantially increase its exports to Japan owing to the resultant economic recession. The truth is that the US' excessively loose monetary policy, excessive financial speculation and lack of supervision have caused the economic imbalance.

Cooperation in new energy is another important issue. When US President Barack Obama visited China in 2009, the two countries agreed to cooperate in new energy R&D. China's growing market has created many opportunities, but many obstacles remain.

The problem, however, lies elsewhere. According to Pew Charitable Trusts: "Private investment in China's clean energy sector increased to a world record $54.4 billion China also is the world's leading producer of wind turbines and solar modules". This has instilled fear in the US that China could take over its world market share and prompted it to take several anti-dumping measures against new energy products from China. This indicates lack of mutual trust, a shortcoming that the two countries have to address.

But on March 9 when Gary Locke, a Chinese American and incumbent secretary of commerce, was named as the new US ambassador to China, it reflected the importance Obama attaches to Sino-US relations. Just as Douglas Paal, of Carnegie Endowment for International Peace, said: "By sending a sitting Cabinet member, moreover, Obama also signals the importance of China in his strategic universe."

The US has delayed publishing its April report on exchange rates, too. This is seen as the US' attempt to create a favorable atmosphere for the S&ED. Let us hope the results of the dialogue are equally favourable for both countries.

The author is assistant president of and a research professor with the China Institute of Contemporary International Relations.