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US, China facing economic, diplomatic flash points

WASHINGTON (AP) -- Two days of high-level talks between the United States and China are expected to expose sharp differences on trade and soaring U.S. budget deficits, but the discussion could be more amicable in the area of foreign policy.

The Obama administration is going out of its way to praise Beijing for the help it has already provided on pressuring North Korea to abandon its nuclear program.

Secretary of State Hillary Rodham Clinton, who with Treasury Secretary Timothy Geithner will lead the U.S. delegation, praised China on Sunday for being "positive and productive" in dealing with North Korea.

"We've been extremely gratified by their forward-leaning commitment to sanctions and the private messages that they have conveyed to the North Koreans," Clinton said on NBC's "Meet the Press."

Clinton's remarks came ahead of discussions Monday and Tuesday in Washington that continue a dialogue started by the Bush administration in 2006 to bridge differences between the two economic superpowers.

Both sides are emphasizing the importance of the meetings. The Chinese are bringing 150 diplomats -- one of the largest delegations it has ever assembled for discussions in Washington -- and the administration will start the discussions with remarks Monday by President Barack Obama.

With the global economy mired in recession, the United States and China have enormous stakes in resolving tensions in such areas as America's huge trade deficit with China and the Chinese government's unease over America's soaring budget deficits.

Other issues such as climate control will also be on the agenda. Both countries are the largest producers of the greenhouse gases blamed for global warming.

Three years ago, then-Treasury Secretary Henry Paulson used the initial U.S.-China talks to press Beijing to let its currency, the yuan, rise in value against the dollar to make it cheaper for Chinese to buy U.S. goods. U.S. manufacturers blame an undervalued yuan for record U.S. trade deficits with China -- and, in part, for a decline in U.S. jobs.

The U.S. efforts have yielded mixed results. The yuan, after rising in value about 22 percent since 2005, has scarcely budged in the past year. Beijing had begun to fear that a stronger yuan could threaten its exports. Chinese exports already were under pressure from the global recession.

But the Obama administration intends to remain focused on the trade gap, telling Beijing that it can't rely on U.S. consumers to pull the global economy out of recession this time. In part, that's because U.S. household savings rates are rising, shrinking consumer spending in this country.

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