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China and Taiwan have signed a historic trade pact, seen as the most significant agreement since civil war split the two governments 60 years ago.
The Economic Co-operation Framework Agreement (ECFA) removes tariffs on hundreds of products. It could boost bilateral trade that already totals $110bn (£73bn) a year.
Correspondents say that, economically, the deal favours Taiwan but that Beijing hopes for political gains in its long-standing unification campaign.
The deal is seen as the culmination of efforts by Taiwan's President Ma Ying-jeou, elected two years ago with a vow to reduce tension with the mainland. Service sectors
The deal was signed in the mainland city of Chongqing and was carried live on state television.
Taiwan's envoy Chiang Pin-kung said the agreement was "a critical moment in the development of long-term relations".
His Beijing counterpart, Chen Yunlin, said the pact was an agreement of "equal consultation and mutual benefits".
The pair exchanged gifts and joined in a toast at the ceremony.
The deal is seen as being most economically beneficial to export-reliant Taiwan.
At the moment $80bn in goods flows to China, and $30bn to Taiwan.
Almost $14bn worth of Taiwanese goods exported to China will have their tariffs reduced or removed.
Taiwanese companies will also gain access to a number of mainland service sectors, including banking and insurance.
Chinese exports worth just under $3bn will see their tariffs lowered.
The BBC's Cindy Sui in Taipei says this is clearly a good economic deal for Taiwan but there remains genuine concern among many that the agreement will make Taiwan too economically dependent on China and therefore politically vulnerable.
There have been some street protests in Taiwan against the deal but opinion polls suggest the majority on the island are in favour.
Taiwanese critics say the deal could leave the island's economy open to a flood of cheap imports.
They also worry about China's motives, arguing that Beijing is hoping to use it to win the political support of big business on the island for its own agenda.
Chinese Premier Wen Jiabao has previously said that his country "can give up our profits because Taiwanese compatriots are our brothers".
For decades, relations between the two sides have been strained.
Taiwan and China have been governed separately since the end of a civil war in 1949.
The site of the signing, Chongqing, has historical resonance. Communist leader Mao Zedong and Nationalist President Chiang Kai-shek tried but failed to sign a truce there.
Paramilitary policemen practise during a daily training session at the Forbidden City in Beijing, February 1, 2010.
Taiwan's President Ma Ying-jeou (L) speaks to Taiwan's top negotiator on China policy, Straits Exchange Foundation Chairman P.K. Chiang, during an International Democrat Union (IDU) meeting in Taipei, February 1, 2010.
Paramilitary policemen practise during a daily training session at the Forbidden City in Beijing, February 1, 2010.
A child runs past a torpedo on display outside the Taiwan Armed Forces Museum in Taipei, January 30, 2010.
U.S. Assistant Defense Secretary for Asian and Pacific Security Affairs Wallace Gregson speaks during a forum hosted by the Japan Institute of International Affairs in Tokyo, February 1, 2010. The United States intends to meet its obligation to ensure Taiwan's self-defence capabilities, Gregson said on Monda
Chinese state media blasted the United States on Monday for a planned $6.4 billion arms package for Taiwan but U.S. officials said they hoped the flap would be temporary and not derail cooperation.
The arms sales, the latest by the United States but the first by the Obama administration, has added to a litany of strains between the world's biggest and third-biggest economies, including the value of China's currency, trade protectionism, Internet freedoms and Tibet.
The official China Daily said U.S. weapons sales to the self-ruled island, which China claims as its own, "inevitably cast a long shadow on Sino-U.S. relations."
"China's response, no matter how vehement, is justified. No country worthy of respect can sit idle while its national security is endangered and core interests damaged," the English-language newspaper said in an editorial.
White House spokesman Robert Gibbs said the U.S.-China relationship was important and "I don't think that either country can afford to simply walk away from the other."
Gibbs said any sanctions against the companies involved in the arms sales, a move threatened by China for the first time, would not be warranted.
The United States switched diplomatic recognition from Taipei to Beijing in 1979, recognizing "one China," and says it wants the two sides to settle their differences peacefully. The United States remains Taiwan's biggest backer and is obliged by the 1979 Taiwan Relations Act to help in the island's defense
.
State Department spokesman P.J. Crowley said the arms sale decision reflected "long-standing commitments to provide for Taiwan's defensive needs."
"We will, as always, pursue our interests but we will do it in a way that we think allows for positive and cooperative relations with China," he told reporters.
U.S. Defense Secretary Robert Gates defended the arms sale, telling reporters he hoped China's decision to protest by curtailing bilateral military contacts would be temporary and that he still planned to visit China later this year.
"Stability is enhanced by contact between our military and a greater understanding of each other's strategies, so I hope that if there is a downturn, that it will be a temporary one and that we can get back to strengthening this relationship," Gates said.
MISSILE BUILDUP CONCERNS
The Pentagon's 2010 Ballistic Missile Defense Review Report to Congress, published on Monday, said the United States was concerned and closely monitoring China's missile buildup and increasingly advanced capabilities in the Pacific region.
"One regional trend that particularly concerns the United States is the growing imbalance of power across the Taiwan Strait in China's favor," the report said.
The report said U.S. defense policymakers "remain committed to a relationship that is positive, cooperative, and comprehensive and do not believe a hostile or adversarial relationship with China is by any means inevitable."
Beijing considers Taiwan a breakaway province that must accept eventual unification, by force if necessary. China's ruling Communist Party controls the country's media and uses them at sensitive times to amplify its message.
Venting intense anger over the arms sales, Chinese Internet users called for a boycott of top U.S. exporter and plane-maker Boeing Co and other companies supplying parts.
China has for years opposed U.S. defense sales to Taiwan, which has been separated from mainland rule since 1949 and was a Japanese colony from 1895 to 1945.
But for the first time, Beijing sought to pressure the United States by threatening to formally punish companies whose arms are involved in the arms package, which was announced on Friday.
"China has no room whatever for compromise on this issue," said a commentary in the Liberation Army Daily, the mouthpiece of the country's military, adding that Chinese armed forces were ready for "resolute struggle" over Taiwan.
"It is entirely reasonable to impose corresponding sanctions on U.S. companies involved in arms sales to Taiwan."
U.S. arms exporters declined to comment on the Chinese threat and White House spokesman Gibbs said: "I don't think those (sanctions) would be warranted."
Walter Lohman, director of Asian studies at the Heritage
Foundation, said China's response was "mostly noise" and probably designed to deter Washington from considering selling F-16 advanced fighter jets to Taiwan.
"Partly what they're doing now is trying to scare us off the F-16 sale, by making a big deal out of this one," he said.
CHINESE FACE LIMITED OPTIONS
Chinese shares appeared unmoved but trading in offshore one-year dollar/yuan non-deliverable forwards (NDFs) implied slightly slower appreciation for the yuan over the next 12 months.
Dealers said the NDFs shift was mainly driven by the dollar's global strength but the Sino-U.S. tension contributed.
China's top leaders, President Hu Jintao and Premier Wen Jiabao, have not publicly commented on what they have said is their nation's topmost issue, suggesting they want to keep some leeway in dealing with Washington.
Despite Beijing's strident words, options for punishing the United States were limited, said Drew Thompson, director of China Studies at the Nixon Center, a thinktank in Washington.
"They don't have a lot of leverage, and that's a source of frustration for them," he said. "It's hard to picture what they could do that's anything other than symbolic."
Sanctions on Boeing could give its rival, Airbus, more leverage in negotiations with Chinese buyers, Thompson said.
U.S. officials have said Taiwan, which lags China in the balance of military power, needs updated weapons to give it more sway with Beijing, which Taiwan says has more than 1,400 short- and mid-range missiles aimed at the island.
Beijing would postpone or partially halt some military contacts with the United States, including visits planned for this year such as Gates's trip, Xinhua news agency said.
China also said the dispute will damage cooperation with the United States over international issues. Washington has sought stronger Chinese support over several hotspots, chiefly the nuclear ambitions of Iran and North Korea.
"It's difficult to take what are global problems and use them as a tool to vent frustration over a bilateral issue," Thompson said of China's options. "They risk isolating themselves pretty badly."
The $6.4 bln sale has outraged Beijing
US President Barack Obama came in for criticism last year for not meeting with Tibetan spiritual leader, The Dalai Lama
Taiwanese soldiers man US-made anti-tank missiles during a military event in the island's capital, Taipei
White House has warned China against sanctioning US firms
US urge China against sanction The United States has urged China not to slap sanctions on US companies selling arms to Taiwan, as the firms tried to stay out of President Barack Obama's biggest row yet with Beijing. The Obama administration defended the arms sale Monday as preserving the military balance between Taiwan and fast-growing China, which reacted furiously to a US announcement it was selling the 6.4 billion dollars in weapons. Beijing has always strongly opposed US sales to Taiwan, which it considers a Chinese territory awaiting reunification. But in a new step, China pledged Saturday to punish the US companies involved in the deal. Related article: China furious at US 'arrogance' on Taiwan White House spokesman Robert Gibbs said that Chinese sanctions "would not be warranted." Gibbs said that Obama had spoken to Chinese leaders when he visited Beijing in November about the question of arms sales to Taiwan, and other issues. "We've always said that we want the type of relationship where we're working together on important issues of mutual concern," Gibbs said. "But when we have disagreements... we'll voice those disagreements out in the open, in public." State Department spokesman Philip Crowley said the sale was consistent with longstanding US policy of only recognizing Beijing but of providing Taiwan with weapons to ward off a potential invasion. "We think these defensive arms will contribute to security and stability across the Taiwan Strait," Crowley said. "We regret the fact that they have suggested they will impose sanctions on US companies involved in the sale of these defensive articles." Obama has tried to pursue wide-ranging cooperation with China, saying that the world's largest developed and developing economies can work together on issues from climate change to the North Korean and Iranian nuclear disputes. But relations have hit a rough patch on a range of disputes including Google's revelations last month that China had been hacking into accounts of the company and human rights activists. Another row may be fast approaching as Tibet's exiled spiritual leader the Dalai Lama is visiting the United States in late February. Obama came under intense criticism at home last year for not meeting with the Dalai Lama so as not to sour the mood before the president's trip to China. The US side agreed that Obama would meet later with the Dalai Lama, who is widely respected in the United States but vilified by China. US companies involved in the Taiwan deal all declined to comment other than to say that the issue concerned governments and not individual firms. An official at one company noted that China did not reveal details about the sanctions, making it difficult to gauge the impact. US defense contractors sell little to China, which has been under a US and EU arms embargo since its bloody 1989 crackdown on pro-democracy protesters in Tiananmen Square. But Boeing Co. -- whose McDonnell Douglas unit was given a 37 million-dollar contract for 12 Harpoon missiles to Taiwan -- is an aerospace giant which counts China as one of its largest markets. Nonetheless, Boeing shares closed up 1.82 percent on the New York Stock Exchange, outpacing the benchmark Dow index, after Obama's budget proposal outlined new business for the company with NASA. Boeing has deep ties with the aviation industry in China, which could stand to lose if it sanctioned the aviation giant. Three Chinese companies are under contract to produce key parts of Boeing's emblematic 787 Dreamliner, which took to the skies in December after a more than two-year delay. Aviation expert Richard Aboulafia, vice president for analysis at Teal Group, said that with past arms sales to Taiwan, "it's usually been this little dance of expressing disapproval over a few months and then things return to normal." "But you never know when there could be a tipping point," he said. "If somehow Europe stays squeaky clean and the US has this tension over Taiwan and Tibet and cyber freedom and climate change, then there may be a shift to the European aerospace companies." --------
Obama has a forum meeting in town hall in Shanghai.Q&A 8 questions. ONly broadcast locally.
A clear majority of Americans see China as an economic threat, a poll showed Monday, as Barack Obama sought to bolster relations on his first trip to Beijing and Shanghai as president.
More than 70 percent of those questioned in the CNN poll said they considered the Asian giant to be an economic threat, while only 28 percent disagreed with the notion.
Two-thirds of those surveyed said they saw China as a source of unfair competition for American companies, while only a quarter viewed China positively as a huge potential market for US goods.
"That may be why 71 percent of Americans consider China an economic threat to the US," said CNN polling director Keating Holland. "Americans tend to view foreign countries as competition, and China is no exception."
Trade tensions between the powers have intensified in recent months, with both sides taking action against the other's imports.
Obama ignited the first major trade spat of his presidency when he imposed punitive duties on Chinese-made tires in September.
An angry Beijing lodged a complaint at the World Trade Organization and retaliated by launching a probe into possible unfair trade practices involving imports of US car products and chicken meat.
The CNN poll Monday showed that Americans were split on whether China posed a military threat with slightly more, 51 percent, agreeing with the statement than disagreeing (47 percent).
A quarter of the 1,014 people questioned in the weekend poll said China had a good track record on human rights, but 68 percent suggested the rights of Chinese citizens were not being respected.
Obama, in booming Shanghai Monday, pushed for an unshackled Internet and expanded political freedoms during a webcast town hall event.
On Chinese state television's evening news, Obama's visit was not even mentioned until 25 minutes into the broadcast. The main dispatch on the state news agency Xinhua on the Shanghai event did not include Obama's comments on Internet freedoms.
President Barack Obama meets again with his Chinese counterpart, Hu Jintao, today to continue what the U.S. leader called “a meeting of the minds” about how their nations can lead on global issues.
During a town-hall session with university students yesterday in Shanghai, Obama said a deeper relationship between the U.S. and China is critical to economic growth in both countries and essential to confronting global issues such as climate change. The agenda will also include discussions on trade, currency, the global economy, North Korea and Iran.
Obama arrived at the Great Hall of the People in Beijing this morning to begin a meeting with Hu. The two leaders are scheduled to make remarks at 12:15 p.m. Beijing time before Obama takes a tour of the Forbidden City.
Obama is “trying to reassure Beijing that we want a good constructive relationship, not trade protectionism, and on the other hand we’re trying to reassure Asia that we’re not going to acquiesce in a future Chinese hegemony in the region,” said Ted Carpenter of the Cato Institute.
“That’s a delicate balance to put it mildly,” said Carpenter, vice president for defense and foreign policy studies at the Washington-based policy research group.
Conciliatory Tone
Obama has struck a mostly conciliatory tone toward China during the first half of his eight-day Asian trip. In Shanghai yesterday, Obama told his student audience that the U.S. “insists we do not seek to contain China’s rise.”
“On the contrary, we welcome China as a strong and prosperous and successful member of the community of nations --a China that draws on the rights, strengths, and creativity of individual Chinese like you,” he said.
Still, the president used the same forum to prod China on human rights and freedom. In addition to speaking to and taking questions from a group of about 400 students selected by their universities, Obama also answered queries submitted via the Internet.
That provided him an opening to talk about “universal rights” of freedom of expression and religion for all people and groups “whether they are in the United States, China, or any nation.”
Internet Access
He also called unfettered Internet access a source of strength for any nation. China, with more than 330 million Internet users, blocks access to Web sites such as the Facebook social network and those dealing with sensitive political issues such as the 1989 Tiananmen Square uprising.
“Unrestricted Internet access is a source of strength, and I think, should be encouraged,” Obama said, adding that the criticism he receives in the U.S. “makes me a better leader because it forces me to hear opinions that I don’t want to hear.”
Obama focused primarily on areas of cooperation during the hour-long forum and will seek to strengthen those ties in his meetings today, administration officials have said. Climate change was one prominent area in which Obama said the U.S. and China have an opportunity to lead the world together.
“Unless both of our countries are willing to take critical steps” to deal with carbon emissions, “we will not be able to resolve it,” Obama said.
Peter Morici, a professor of business at the University of Maryland in College Park, Maryland, said “the Obama approach of ‘we’re in this together’ has failed with China” because “the Chinese view foreign policy in terms of national interest, not global community.”
If the U.S. caps emissions China will not follow suit, and that will create more manufacturing jobs in China and “an opening to further exploit American weakness,” Morici said.
Trade
Trade and the global economy are other top issues for Obama while in China, the third stop on a four-nation trip to Asia. He told his audience yesterday that trade between the U.S. and China has driven economic growth in both countries and that a more balanced relationship will provide greater prosperity.
“This trade could create even more jobs on both sides of the Pacific,” Obama said. “As demand becomes more balanced it could lead to even broader prosperity.”
The administration estimates that every percentage point of increase in U.S. exports to Asia could create 250,000 U.S. jobs, according to Michael Froman, Obama’s deputy national security adviser for international economics.
His comments come after the weekend’s Asia-Pacific Economic Cooperation forum in Singapore, where some leaders expressed concern about his commitment to free trade.
Import Duties
Obama decided in September to impose duties of 35 percent on $1.8 billion of automobile tires imported from China. A month later, the U.S. imposed duties of as much as 99 percent on Chinese steel pipe after American producers led by U.S. Steel Corp. complained that the imports were being dumped at below- market prices.
While Obama has credited China’s economic stimulus efforts with aiding the global recovery, he said before leaving Washington that he expected to raise the issue of China’s currency peg to the dollar.
China has kept the yuan at about 6.83 per dollar since July 2008. Some lawmakers in the U.S. have been calling for the administration to put more pressure on the Chinese, saying the yuan’s value is unfairly undercutting U.S. companies.
China’s Comment
A spokesman for China’s Ministry of Commerce said yesterday that international pressure for appreciation of the yuan “is not conducive to a global economic recovery and is not fair.”
The spokesman, Yao Jian, said at a press briefing in Beijing that China must provide “a stable and predictable environment in terms of macro-economic and exchange rate policies.”
In addition to economic issues, Obama’s agenda includes pressing China to take a tougher stance on Iran, which the U.S. says is seeking to develop nuclear weapons capability. China has been reluctant to back more sanctions against the Islamic republic.
Over the weekend in Singapore, Russia’s president Dmitry Medvedev and Obama said time was running out for Iran to accept terms of a deal offered by international negotiators and suggested they are moving closer to discussions new sanctions against Iran.
China also is a key player in the six-party talks on North Korea’s nuclear weapons program. ---
The prospect of a trade war with China fueled fears of wider fallout Monday, rattling bond markets and prompting many economists to criticize President Obama's decision to slap import tariffs on Chinese-made tires.
Traders fretted that the 35 percent tariffs might prompt China to send a sign of disapproval by paring purchases of U.S. government bonds. And a chorus of economists and climate activists fretted that the president's action might undercut U.S.-China climate talks and poison relations just two weeks before the summit of the Group of 20 major economies to be held in Pittsburgh.
Moreover, economists argued that it would all be for nothing; they said tariffs on Chinese tires would probably boost U.S. imports from countries like Poland and Mexico and do little to help the American steelworkers whose union brought the trade action in the first place.
Obama said Monday on CNBC that the tariffs, which were announced late Friday night, were necessary to maintain the "credibility" of trade agreements. "I'm not surprised that China is upset about it, but keep in mind, we have a huge economic relationship with China," he said.
China's commerce minister, Chen Deming, called Obama's action an "abuse" of trade provisions and said it "sends the wrong signal to the world." China said it would look into punitive measures against U.S. exports of auto and poultry parts.
"I think it's a terrible message in the run-up to the G-20, and we are all very concerned about the escalation of protectionist measures," said Uri Dadush, senior associate at the Carnegie Endowment for International Peace and long-time international trade director at the World Bank.
The Obama administration also said it was not worried. "We do not expect that it will have an impact on the broader relationship," said a senior administration official who spoke on the condition of anonymity because he was not authorized to speak publicly. He said that there had been a "robust effort" by the administration to negotiate with China for a settlement on tires before imposing import tariffs. He asserted that U.S. imports of Chinese tires, which more than tripled since 2004, clearly met the test for tariffs aimed at reducing "surges" in imports.
But when asked about whether the United States would simply import from other nations, he conceded that "it is hard to predict the impact with specificity."
"A healthy economy in the 21st century also depends on our ability to buy and sell goods in markets across the globe. And make no mistake, this administration is committed to pursuing expanded trade and new trade agreements," Obama said in a speech Monday in New York's financial district.
Thea Lee, an economist and policy director for the AFL-CIO, said the concern over an incipient trade war was overblown and called China's reaction "blustering."
"The Chinese government is trying to raise the rhetoric and scare off the U.S. We should not be scared off," she said. "We are within our rights. . . . It's not the beginning of a trade war."
From 2004 to last year, the number of Chinese tires imported in the United States more than tripled and their share of the U.S. market rose from 5 percent to 17 percent. Over the same period, the share of the U.S. market served by U.S. factories declined by a corresponding amount. More than 5,000 U.S. jobs were lost.
Opponents of the tariff say the U.S. industry's shrinkage is unrelated to the surge in Chinese imports. U.S. manufacturers, they say, have strategically moved into pricier, more profitable tires, shifting production of cheaper tires overseas. Yao Jian, a Chinese Commerce Ministry spokesman, said, "Four U.S. companies have tire production operations in China and account for two-thirds of exports to the U.S. The tariffs will have a direct impact on them."
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Under the so-called "421 clause" that China agreed to as part of its bid to gain admission to the World Trade Organization, the United States does not need to prove unfair trade practices. ------------
