Hopes are high for US, China talks

Chinese and US officials were busy in talks on Monday leading up to the two-day fifth round of Strategic and Economic Dialogue (S&ED) and got right down to sensitive issues like cyber security.

US officials described the first meeting on Monday by the newly established China-US working group on cyber security as a "constructive" discussion.

"We had a constructive discussion with our Chinese counterparts, including norms of behavior in cyber space," said Chris Painter, a State Department coordinator for cyber issues, on a conference call Monday afternoon. "Both sides made practical proposals to increase our cooperation and build understanding and transparency between the two sides."

Painter hopes the first meeting will be the start of a substantive discussion between the US and China on cyber issues.

The US has claimed that the Chinese government has been involved in hacking into US corporations, an accusation that the Chinese government has flatly denied.

Many Chinese are furious over recent revelations by former National Security Agency contractor Edward Snowden that the NSA has hacked into Tsinghua University's "backbone" network, a major one in China, and monitored cell phone companies on both the mainland and Hong Kong to gather messages of millions of users.

Chinese officials have argued that such behavior constitutes economic theft, infringement on the rights of millions of Chinese individuals and corporations, and a threat to China's national security.

While there is clearly tension over cyber space issues, both sides are looking for positive tones from the S&ED on July 10-11.

Assistant Secretary of State for East Asian and Pacific Affairs Kin Moy emphasized that this S&ED will have four new faces co-chairing the dialogue: Secretary of State John Kerry and Secretary of Treasury Jack Lew on the US side, and Vice Premier Wang Yang and State Councilor Yang Jiechi on the Chinese side.

Kerry's wife, Teresa Heinz Kerry, has been having serious health issues in recent days and his schedule will be determined on a day-to-day basis throughout the week, according to State Department spokesman Patrick Ventrell.

Moy stressed that the meeting comes just a month after the Sunnylands summit between Presidents Xi Jinping and Barack Obama.

"The dialogue we are having with the Chinese this week very much follows on the important discussions on June 7-8," he said.

"The S&ED remains a key mechanism for putting into practice our presidents' vision. It's important just four weeks after the discussions in California," he said.

A wide range of issues is expected to be discussed on the security side, including the Korean Peninsula, Syria, Iran and other regional security issues. China has expressed dissatisfaction over the US attitude over territorial disputes in the South and East China Seas.

One highlight of the S&ED will be talks on energy security and climate change, which Moy described as new features to the dialogue.

A wide range of issues is expected to be discussed on the security side, including the Korean Peninsula, Syria, Iran and other regional security issues. China has expressed dissatisfaction over the US attitude over territorial disputes in the South and East China Seas.

One highlight of the S&ED will be talks on energy security and climate change, which Moy described as new features to the dialogue.

"We want to demonstrate that the two largest economies in the world can cooperate in this century to help tackle this environmental challenge," said Moy.

Sharon Yuan, deputy assistant secretary of the treasury for trade and investment policy, described the S&ED as an important opportunity to bring together senior officials from the two governments to discuss, engage and - more importantly - to make progress on issues of concern to both countries.

The US side has expressed concerns over the role of China's state-owned enterprises, IPR protection, exchange rates and interest rates and upcoming economic reforms that are expected to turn China's economy from an investment-driven model to a consumption-driven one.

The Chinese side has raised concerns over the US government review process overseeing foreign direct investment in the US, the restrictions on high-tech exports to China as well as the quantitative easing policy, which China claims is hurting its economy.

As usual, heavyweights from both sides will attend the S&ED. They will include Federal Reserve Chairman Ben Bernanke, Commerce Secretary Penny Pritzker and US Trade Representative Michael Froman.

Senior Chinese officials will also include Finance Minister Lou Jiwei, central bank governor Zhou Xiaochuan and Commerce Minister Gao Hucheng.

At the end of the talks, the two sides are expected to announce an outcome document that lists the areas of cooperation they have identified.

The 4th S&ED, held in Beijing a year ago, identified some 50 areas. This year, the number of areas is expected to be much higher, according to Chinese officials.