( AFP ) - With their economic woes mounting, the United States and China will hold high-level talks this week on key issues amid concerns over a tightly-controlled Chinese currency and protectionism.
The cabinet-level talks in Beijing will also tackle the prickly issue of safety of Chinese-made products that have been targeted in a spate of overseas safety recalls this year, with toys in the spotlight.
"The meeting comes at a delicate time, as a new group of leaders move into China's most senior positions," said Treasury Secretary Henry Paulson, who will lead the US side for the twice-yearly talks of the "Strategic Economic Dialogue" on December 12-13.
Among the changes in the Chinese leadership will involve Wu Yi, the Chinese vice-premier and Paulson's counterpart at the dialogue, who will be retiring early 2008. Both have struck good personal ties that have helped ease tensions between the world's richest and most rapidly growing economies.
The meeting will be preceded by a critical round of talks of the US-China Joint Commission on Commerce and Trade, which seeks to open market opportunities and resolve trade disputes between the two powers.
Just like in previous economic meetings, the currency issue is expected to hog the agenda.
Before the last economic dialogue in May, Beijing announced a widening of the trading band of its yuan currency, apparently to counter foreign criticism that Chinese exporters have an unfair edge on world markets with an artificially low currency.
The United States says China should allow for more rapid appreciation of the yuan , which has risen by a little shy of 12 percent against the US dollar since July 2005 when Beijing decided to free it from a long-standing peg to the greenback in favor of a trade-weighted basket of currencies.
US officials are calling for a greater yuan appreciation now, saying it was timely as rapidly-growing China moves to contain rising inflation and economic overheating with the prospect of a clampdown on lending next year.
"But the offsetting factors -- especially a widespread Chinese perception that the United States will plunge into recession -- are quite powerful," said Nicholas Lardy, an expert at the Washington-based Peterson Institute for International Economics.
A US recession will dampen China's export growth and weaken aggregate demand, factors that do not require a more rapid appreciation of the currency, he said.
Lardy cited another factor that could prevent Beijing from allowing the yuan to appreciate more rapidly -- widespread Chinese expectation that the Democrats, who already control Congress, make take over the White House in January 2009.
With all Democratic presidential candidates currently taking a more hostile attitude towards China's big global current account surplus, Beijing may put off any major currency reform for a year, he said.
"The thinking of some people in China is 'well, we'll do as little as possible in the current administration and to the extent to which we can do something because of domestic factors, we'll safe it and do it after January 2009 when a new administration may be breathing down our neck with greater intensity," Lardy said.
Aside from currency, the two sides will tackle issues such as safety of Chinese exports, rising economic nationalism and protectionist sentiments in both the United States and China as well as energy and environment problems.
" China's management of food and product safety issues will have a long-term impact on our trade relations, the sustainability of China's growth strategy and its further integration into the global trading system," Paulson said.
There is also worry in Washington that China, after welcoming foreign investment that has fueled manufacturing growth and expert competitiveness, will now tighten restrictions on foreign investment to protect domestic industries.
" China cannot protect its way to prosperity -- protectionism harms China's industrial development and our efforts to build stronger trading relationships," Paulson said.
The meeting of the joint commission on commerce and trade on December 11 will address what US officials consider are significant Chinese trade barriers.
It provides an "important face-to-face platform to address concrete market access issues and strike down these barriers to the fast-growing Chinese market," said Commerce Secretary Carlos Gutierrez.