Before leaving for the United States, the Chinese president said that he was prepared to negotiate. “Certainly China and the United States may have different views on many issues, including the world economic crisis and trade, but we can't overlook the fact that both also have shared interests,” Chinese vice Foreign Minister Cui Tiankai told journalists ahead of the president’s trip.
The issue of China’s currency is complex and has monopolised discussions between the two countries in recent months. In a year, the yuan renminbi has gained 0.1 per cent against the dollar, and is now traded at 6.6651 yuan per dollar.
In view of the situation, Washington has been urging Beijing to change its exchange policy and allow its currency to appreciate. China has shot back saying the United States simply wants to cut its debt by reducing the value of US assets it holds.
At the end of People’s National Congress last month, Prime Minister Wen Jiabao said the yuan was not undervalued and that it would not budge. However, a number of economic analysts believe that stress tests conducted at the time show that the Chinese government is at least considering that possibility.
In any event, Washington is not going to give up on the issue. On Thursday, the US Congress is set to release papers that might accuse Beijing of illegally manipulating exchange rates to its benefit. Even though China will not accept any charges without a fight, they will affect trade relations with the West. If this were the case, China might back away from supporting the United States.
After conducting stress tests to see the effects of revaluation, Yi Xiaozhun, a vice-minister in the commerce ministry, told the BBC that short-term appreciation would hit China’s domestic market, but could be beneficial in the longer-term. However, "Some American politicians and academics, because of hardship at home, have politicised this argument," he said.
Obama and Hu will discuss other sensitive issues as well, namely Taiwan and Tibet.
“China wants stability for its relationship with the US," said Zhou Zunnan, a professor at China Foreign Affairs University. "China is fully aware that it cannot afford to be as confrontational as Russia [during the cold war] against the US."
In the end, the two sides are expected to reach a compromise.