U.S., China Chart Economic Efforts

Trade Balance, Regulation Are Key Goals

The United States and China pledged Tuesday to lay a foundation for a global economic recovery by pursuing policies aimed at easing their massive trade imbalance and improving regulation of the financial system.

The commitments by the two major engines of the global economy came at the end of two days of high-level discussions in Washington that covered a broad range of topics besides the global recession, including North Korea, nuclear proliferation and climate change.

The talks, co-chaired by Treasury Secretary Timothy F. Geithner and Secretary of State Hillary Rodham Clinton, produced little in the way of substantive agreements. Instead, officials from both countries outlined common concerns that they said they would continue to address: the trade imbalance, financial regulatory reform, protectionism and climate change. They also said they would work to reform the governance of the International Monetary Fund and the World Bank to better reflect China's status as the world's third-largest economy.

In closing statements, Geithner called cooperation between the United States and China "vital not only to the well-being of our two nations but also the health of the global economy."

Geithner assembled a team of senior U.S. economic officials for the meetings, including Federal Reserve Chairman Ben S. Bernanke and White House economic adviser Lawrence H. Summers, in part to reassure the Chinese about the safety of their U.S. investments.

Last fall, China replaced Japan as the United States' No. 1 foreign creditor; it now holds roughly $1 out of every $10 in U.S. public debt. But the Chinese, along with many other investors, fear that massive U.S. spending, as well as the Fed's injection of hundreds of billions of dollars into the financial system, may cause inflation to flare, reducing the value of their U.S. investments.

China's trade surplus with the United States long helped fuel its investment in Treasurys. As Americans bought cheap Chinese imports, U.S. dollars flowed to China, which in turn used those dollars to invest in U.S. debt and mortgage-related securities.

But with U.S. home prices falling and unemployment rising, American consumers have cut back on spending -- a shift that has dampened growth in China.

The country has made up for some of the lost demand for exports through stimulus spending. The Chinese economy grew at a surprisingly strong annualized rate of 7.9 percent in the second quarter, the government said this month. But, over the long term, Chinese officials said they want to reduce their dependence on exports by stimulating domestic consumption.

On the political front, Clinton on Tuesday said her discussions on North Korea's nuclear program, Iran's nuclear program and climate change were the most productive. She also said U.S. officials "expressed our concern" about human rights issues, especially the recent violence in China's far western region of Xinjiang, where rioting by ethnic Uighur protesters was met with deadly force by government forces.

Asked about that conversation on Xinjiang, China's vice foreign minister, Wang Guangya, described the violence as a "terrorist act." He said the Chinese side "expressed our appreciation for the moderate attitude of the United States" on the matter.

Separately, officials from China and the United States signed a memorandum of understanding reaffirming their commitment to cooperation on climate change without agreeing to specific emissions targets. The agreement was yet another step in slow-moving negotiations seen as vital to the effort to produce a global pact on greenhouse gases.

The United States and China are the world's two biggest emitters of the heat-trapping gases, and neither joined the Kyoto Protocol, an agreement to reduce emissions. Around the world, diplomats are trying to hammer out a replacement agreement for the Kyoto pact, to be signed in Copenhagen in December. But environmentalists say that will be difficult if China and the United States do not reach an agreement first.

"If you don't get . . . the U.S. and China to the table, then it's very difficult to get to a global solution," said David Pumphrey, a climate-policy expert at the Center for Strategic and International Studies.

Analysts said that while this week's talks did not produce any breakthrough agreements, they laid the foundation for future ones by setting the right tone for a relationship that has at times been tense. Last year, for instance, military ties between the countries cooled after the Pentagon announced the sale of $6.5 billion in weaponry to Taiwan, which Beijing regards as a part of China. On Tuesday, the Chinese delegation announced that the vice chairman of China's Central Military Commission would visit the United States this year.

The Obama administration "is saying let's see if there are ways we can minimize disagreements to get to good outcomes," said Kenneth Lieberthal, a China expert with the Brookings Institution. "Where that is impossible, the question is: How tough does the administration get? We'll be finding out over the coming year."

Staff writer David A. Fahrenthold contributed to this report.