The United States and China sought on Wednesday to stress the positives in their relationship after three days of high-level talks, but failed to narrow differences on the most contentious issues of cyber and maritime security.
U.S. Treasury Secretary Jack Lew said both sides had committed to work more towards a Bilateral Investment Treaty already seven years in the making and said China had pledged to limit intervention in currency markets. It also pledged to further liberalize exchange rates, open capital markets and expand access to foreign financial service firms.
The two countries also stressed cooperation in combating climate change, their shared concerns about Iran and North Korea's nuclear programs, the fight against Islamist militancy, and support for global development.
However, in what both termed "candid" and "frank" exchanges at their annual Strategic and Economic Dialogue, they restated divergent positions on China's pursuit of territorial claims in the South China Sea and on cybersecurity, the principal causes of deteriorating trust between the world's two largest economies.
U.S. Secretary of State John Kerry told reporters the United States remained "deeply concerned" about cyber incursions, which have included massive attacks on U.S. government computers that U.S. officials have blamed on Chinese hackers.
He said it also had "a strong national interest" in freedom of navigation and overflight - a reference to concerns that China might one day declare an exclusion zone around reefs it has been building up in the South China Sea.
China's top diplomat, State Councillor Yang Jiechi, said the two countries should work together on cybersecurity and called on Washington to be "impartial and objective" when it came to the South China Sea.
He said China had stressed its "firm determination" to safeguard its sovereignty and urged the United States to respect this.
However, Yang Jiechi added: "Navigation freedom in the South China Sea is guaranteed. We do believe that there will not be any issue or problem with navigational freedom in future. We hope the U.S. can be impartial and objective to serve peace and stability in this region."
Obama urges China to ease tensions
President Barack Obama met Yang and other Chinese officials earlier and raised concerns about China's "cyber and maritime behavior" as well as its currency, technology and investment policies. He urged China "to take concrete steps to lower tensions," the White House said.
Obama's policy of pivoting U.S. resources to Asia in response to China's rapid rise got a welcome boost on Wednesday, when the Senate passed legislation vital to speed passage of a 12-nation Trans-Pacific Partnership (TPP) trade deal under negotiation after a six-week congressional battle.
Kerry sought to play down any notion of what many analysts see as a rapidly deteriorating U.S. relationship with China.
"I don't think you heard any scintilla, not one tiny piece, of an indication of this downward spiral," he said.
"I think what you saw was ascending relationship with great clarity about the things on which we're going to cooperate. Even as there is some disagreement about how to approach one, or two, or three issues "
Lew said the United States would keep pressing China to move to a market-determined exchange rate, even after Beijing's commitment at the talks to intervene in currency markets only in "disorderly market conditions."
Beijing told Washington last year it would refrain from intervention when possible and Lew said this year's commitment was a more explicit statement of what this meant. He said the true test would come if the yuan came under pressure to appreciate.
Lew said the two sides had committed to exchanging new "negative lists" - those areas that will remain out of bounds under a future investment treaty - in early September.
He stressed there was still a long way to go on negotiations and if the talks were a nine-inning baseball game, "we're in the first few innings."
However, a scheduled visit to Washington in September by China's President Xi Jinping for talks with Obama should focus efforts to make progress on the negative lists, Lew said.
Beijing restricts foreign investment in vast swaths of its economy, and Washington hopes that an eventual investment treaty could open up China's financial and telecom sectors.
The United States on its part reviews more investments from China over security concerns than it does of any other country, which has helped scuttle Chinese investments in everything from U.S. telecommunications infrastructure to wind farms.