US, China expose faultlines but vow cooperation

WASHINGTON - The United States and China vowed to avoid confrontation as they headed Wednesday into a final day of key talks, confronting head-on differences on issues such as cyber security and freedom of the seas.

President Barack Obama was also preparing to meet key members of the Chinese delegation Wednesday ahead of a visit in September by Chinese President Xi Jinping.

US Vice President Joe Biden sharply warned Beijing Tuesday that the world's waterways - which carry 80 per cent of the planet's commerce - must remain open.

"Responsible countries adhere to international law and work together to keep international sea lanes open for unimpaired commerce," Biden said pointedly.

The two major trading partners remain at odds over China's claims to much of the South China Sea and Washington has repeatedly urged Beijing to stop building artificial islands and resolve its numerous territorial claims peacefully.

"Nations that discard diplomacy and use coercion and intimidation to settle disputes, or turn a blind eye to aggression of others, only invite instability," Biden warned.

In unusually frank comments, Chinese Vice Premier Wang Yang agreed Beijing and Washington do not agree on everything, admitting "on some issues, perhaps, consensus still eludes us." But he insisted "neither of us could afford the cost of noncooperation or even all-out confrontation." "Decision-makers of both countries must always remember that confrontation is a negative sum game in which both sides will pay heavy prices and the world will suffer too," Wang said.

New rules needed

Welcoming the top delegation of some 400 officials also led by China's State Councilor Yang Jiechi for the seventh round of annual talks, Biden insisted Beijing must be at the table to help set up a new "rules-based system" in a rapidly changing world.

"There will be intense competition, we will have intense disagreements. That's the nature of international relations," Biden said.

"There are important issues where we don't see eye-to-eye, but it doesn't mean we should stop working hand-in-hand," he said.

US Secretary of State John Kerry insisted: "No nations agree on every issue. But we do not accept that a narrowing of the differences is beyond our reach." "Our relationship is dynamic and it has grown and matured steadily in the past decades." Jiechi vowed China would work with the United States "in a spirit of openness, to properly address the relevant issues." High on the agenda is cyber hacking, with Treasury Secretary Jacob Lew insisting both nations must "abide by certain standards of behaviour within cyberspace." "We remain deeply concerned about Chinese government-sponsored cyber-enabled theft of confidential business information and proprietary technology from US companies," Lew told the delegations.

"Such activity falls outside of the bounds of acceptable state behaviour in cyberspace." But in a sign of China's discontent, Chinese Finance Minister Lou Jiwei called on the US to boost its domestic savings and investment to strengthen growth, including spending to improve infrastructure.

"The United States should have a proper mechanism to mobilize more savings to direct to investment," he said, pointing out that China's contribution to global growth is 30 per cent, while the US, the largest economy in the world, added only 10 per cent.

Ties have strained over US accusations of cyber espionage and a bilateral cyber working group was suspended by Beijing last year after Washington indicted five Chinese military officers for hacking into US computers.

This week's talks come after revelations of huge breaches of US government computer networks at the Office of Personnel Management - an issue US officials said they would raise directly with their Chinese guests.

Kerry said the two countries, the world's two largest economies but also biggest emitters of greenhouse gases, were working "effectively" to try to reduce emissions ahead of a key UN-led Paris conference on setting new targets in December.

"The idea is that you are creating a critical mass of countries that are setting these targets and everyone feels compelled to join," Kerry said.