China data helps Australia shares amid US, Europe worries - Reuters

Men walk past an electronic board displaying market indices from around the world outside a brokerage in Tokyo.

Credit: Reuters/Toru Hanai

By Chikako Mogi

TOKYO | Mon Apr 30, 2012 10:35pm EDT

TOKYO (Reuters) - Asian shares inched up on Tuesday as Chinese factory data lent support to Australian stocks, but concerns about the U.S. economy and the euro zone capped prices.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.2 percent, after posting just a 0.4 percent gain in April.

Japan's Nikkei stock average .N225 extended losses from Friday to fall 1.1 percent as a stronger yen hurt exporters. The market was closed on Monday for a public holiday. .T

Australian shares .AXJO extended gains to a rise on the day of 0.5 percent after data showing China's official purchasing managers' index (PMI) rose to a 13-month high of 53.3 in April. The market had been up 0.2 percent before the data was released.

The PMI indicated a further expansion in the vast factory sector, which could mean more demand for Australian resources, but the index also came in below expectations of 53.6.

Beyond Australian shares, there was no specific market reaction. Most markets in Asia and Europe are closed on Tuesday to mark May Day holidays.

The Australian dollar was little changed at $1.0411 ahead of a policy decision by the Reserve Bank of Australia due later in the session. Many market players expect the central bank to cut its policy rate by 25 basis points to 4.00 percent.

"The Chinese PMI was better than last month but weaker than expectations, so the impact to markets was neutral," said Yuji Saito, director of the foreign exchange division at Credit Agricole Bank in Tokyo.

"Market focus is on a slew of developments in Europe this week and key U.S. data. The dollar looks top-heavy against the yen but I don't get a sense that it's headed for a further drop," he said.

DOLLAR/YEN PRESSURED

Investor sentiment this week is likely to be shaped by U.S. data and the EU debt crisis.

The U.S. ISM manufacturing index on Tuesday and non-farm payrolls figures on Friday will offer investors clues on the shape of the U.S. economy and whether the Federal Reserve will have to lean towards offering more support.

The European Central Bank's policy meeting on Thursday precedes weekend elections in France and Greece that could determine future progress in the euro zone's austerity efforts, and may prompt the euro to break out of recent ranges.

The dollar recovered against a basket of major currencies .DXY to 78.784 after falling to a two-month low of 78.638 on Monday.

The yen edged back to 79.90 yen against the dollar after touching 79.73 yen on Monday, its highest in more than two months. The current rate represents roughly a 50 percent retracement of the dollar's climb from this year's low near 76 yen in early February to a peak around 84 yen hit in mid-March.

The dollar was down 3.6 percent against the yen in April, its weakest monthly performance since July 2011.

The euro was at $1.3237, near one-month high of $1.3270 hit on Friday.

SPAIN IN RECESSION

Global stocks fell, the dollar and the euro weakened and the yen rose on Monday as investors shunned risk after data raised questions about the health of the U.S. economy and on concerns austerity measures could further undermine the euro zone's vulnerable economies after Spain's economy sank into recession in the first quarter.

After last week's softer-than-expected first-quarter GDP, data on Monday showed consumers increasing their spending only modestly in March and a gauge of business activity in the Midwest falling sharply in April.

For Spain, economists said spending cuts aimed at meeting strict European Union deficit limits, together with a reeling bank sector, would delay any return to growth until late this year or beyond.

Oil stayed pressured by sluggish demand outlook, with U.S. crude futures down 0.1 percent at $104.72 a barrel and Brent futures falling 0.2 percent at $119.28 a barrel.

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China, Russia resist West's sanctions push for Sudan, South Sudan - Reuters

Russia's Foreign Minister Sergei Lavrov attends a meeting with his Sudanese counterpart Ali Ahmed Karti in Moscow April 30, 2012.

Credit: Reuters/Denis Sinyakov

By Louis Charbonneau

UNITED NATIONS | Tue May 1, 2012 1:20am EDT

UNITED NATIONS (Reuters) - China and Russia are resisting a Western push for the U.N. Security Council to threaten Sudan and South Sudan with sanctions if the two countries fail to comply with demands to halt their escalating conflict, U.N. envoys said.

The U.N. negotiations on Sudan and South Sudan, former civil war foes that split when the south seceded last year, follow weeks of border fighting that have raised fears Khartoum and Juba could launch an all-out war, after failing to resolve a string of disputes over oil revenues and border demarcation.

Delegates from the 15-nation Security Council met on Monday for several hours at the U.S. mission in New York to try to reach an agreement on amending a U.S.-drafted resolution on the two Sudans that council members hope to put to a vote later this week, Western diplomats told Reuters on condition of anonymity.

After their discussions, the United States circulated a revised draft resolution that threatens both Sudan and South Sudan with "additional measures" under Article 41 of the U.N. charter, which allows the council to impose economic and diplomatic sanctions on countries that ignore its decisions.

"The draft will probably change before it goes to a vote, which we hope will happen on Wednesday," a diplomat told Reuters. "China doesn't want any mention of Article 41."

Beijing, which has close trade relations with both Khartoum and Juba, has traditionally acted as Sudan's protector on the council and for years has shielded it from U.S. and European calls for sanctions due to its handling of conflicts in its western Darfur region and elsewhere in the country.

Russia is supporting China's push to water down the resolution and also dislikes the idea of mentioning Article 41 in the resolution, council diplomats said. Article 41 does not authorize military intervention.

RUSSIAN RELUCTANCE

Russian Foreign Minister Sergei Lavrov made clear at a joint news conference in Moscow on Monday with visiting Sudanese Foreign Minister Ali Ahmed Karti that Russia has reservations about threatening the two Sudans with punitive measures.

He also suggested that Russia did not want any automatic triggers for sanctions in the draft resolution.

"Yes, some economic measures could be taken but ... this is not an automatic decision, but only an indication, depending on how the resolution is implemented," Lavrov said.

Under the latest U.S. draft, as with two previous versions, the council would have to pass a new resolution to impose sanctions on either Khartoum or Juba for not ending hostilities.

The United States made an attempt to soften the language in the latest draft. The first version, obtained by Reuters, warned Khartoum and Juba of "its determination, in the event that one or both of the parties have not complied, to take appropriate additional measures under Article 41 of the (U.N.) Charter."

The latest version, also obtained by Reuters, softens it by speaking of the council's "intention" to take steps under Article 41 in the event of non-compliance.

The African Union's Peace and Security Council last week urged both sides to cease hostilities and withdraw troops from disputed areas, and warned it would issue its own binding rulings if they failed to strike deals on a string of disputes within three months.

The U.S.-drafted Security Council resolution is intended to reinforce the AU declaration by making it legally binding.

Russia has traditionally been reluctant to impose sanctions on any nation, calling them counterproductive.

Sudan's Karti said on Monday in Moscow that Sudan had armed forces on the border with South Sudan for legitimate protection.

"This is within the borders of Sudan and not outside of Sudan and this is our right, we can deploy our forces anywhere," he said. "We're not at all preparing ourselves for war."

On Sunday, South Sudan told the United Nations it would pull all police out of a disputed region on its border with Sudan.

(Additional reporting by Lidia Kelly in Moscow; Editing by Paul Simao)

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China PMI helps Aussie shares amid US, Europe worries - Reuters

Men walk past an electronic board displaying market indices from around the world outside a brokerage in Tokyo.

Credit: Reuters/Toru Hanai

By Chikako Mogi

TOKYO | Mon Apr 30, 2012 10:35pm EDT

TOKYO (Reuters) - Asian shares inched up on Tuesday as Chinese factory data lent support to Australian stocks, but concerns about the U.S. economy and the euro zone capped prices.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.2 percent, after posting just a 0.4 percent gain in April.

Japan's Nikkei stock average .N225 extended losses from Friday to fall 1.1 percent as a stronger yen hurt exporters. The market was closed on Monday for a public holiday. .T

Australian shares .AXJO extended gains to a rise on the day of 0.5 percent after data showing China's official purchasing managers' index (PMI) rose to a 13-month high of 53.3 in April. The market had been up 0.2 percent before the data was released.

The PMI indicated a further expansion in the vast factory sector, which could mean more demand for Australian resources, but the index also came in below expectations of 53.6.

Beyond Australian shares, there was no specific market reaction. Most markets in Asia and Europe are closed on Tuesday to mark May Day holidays.

The Australian dollar was little changed at $1.0411 ahead of a policy decision by the Reserve Bank of Australia due later in the session. Many market players expect the central bank to cut its policy rate by 25 basis points to 4.00 percent.

"The Chinese PMI was better than last month but weaker than expectations, so the impact to markets was neutral," said Yuji Saito, director of the foreign exchange division at Credit Agricole Bank in Tokyo.

"Market focus is on a slew of developments in Europe this week and key U.S. data. The dollar looks top-heavy against the yen but I don't get a sense that it's headed for a further drop," he said.

DOLLAR/YEN PRESSURED

Investor sentiment this week is likely to be shaped by U.S. data and the EU debt crisis.

The U.S. ISM manufacturing index on Tuesday and non-farm payrolls figures on Friday will offer investors clues on the shape of the U.S. economy and whether the Federal Reserve will have to lean towards offering more support.

The European Central Bank's policy meeting on Thursday precedes weekend elections in France and Greece that could determine future progress in the euro zone's austerity efforts, and may prompt the euro to break out of recent ranges.

The dollar recovered against a basket of major currencies .DXY to 78.784 after falling to a two-month low of 78.638 on Monday.

The yen edged back to 79.90 yen against the dollar after touching 79.73 yen on Monday, its highest in more than two months. The current rate represents roughly a 50 percent retracement of the dollar's climb from this year's low near 76 yen in early February to a peak around 84 yen hit in mid-March.

The dollar was down 3.6 percent against the yen in April, its weakest monthly performance since July 2011.

The euro was at $1.3237, near one-month high of $1.3270 hit on Friday.

SPAIN IN RECESSION

Global stocks fell, the dollar and the euro weakened and the yen rose on Monday as investors shunned risk after data raised questions about the health of the U.S. economy and on concerns austerity measures could further undermine the euro zone's vulnerable economies after Spain's economy sank into recession in the first quarter.

After last week's softer-than-expected first-quarter GDP, data on Monday showed consumers increasing their spending only modestly in March and a gauge of business activity in the Midwest falling sharply in April.

For Spain, economists said spending cuts aimed at meeting strict European Union deficit limits, together with a reeling bank sector, would delay any return to growth until late this year or beyond.

Oil stayed pressured by sluggish demand outlook, with U.S. crude futures down 0.1 percent at $104.72 a barrel and Brent futures falling 0.2 percent at $119.28 a barrel.

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Dissident Case Clouds US's Beijing Visit - Wall Street Journal

By JAY SOLOMON

WASHINGTONâ€"The White House scolded China on its human-rights record on Monday as Secretary of State Hillary Clinton prepared to depart for Beijing on a mission that holds the potential to redefine the Obama administration's relations with China.

President Barack Obama upheld his administration's broad silence on the issue of Chinese dissident Chen Guangcheng, who late last week disappeared after escaping from house arrest, spurring widespread speculation that he is being harbored by American officials in Beijing.

"Obviously, I'm aware of the press reports on the situation in China, but I'm not going to make a statement on the issue," Mr. Obama told reporters at the White House. "What I would like to emphasize is that every time we meet with China, the issue of human rights comes up."

For Mrs. Clintonâ€"who positioned China at the top of her agenda after becoming Washington's chief diplomat three years ago and has been a lead architect of U.S. efforts to strengthen its position in East Asiaâ€"this week's mission has emerged as the most delicate of her career. It could set the tone for U.S.-China relations for years, said current and former U.S. officials.

The question of whether Mr. Chen is under the protection of U.S. diplomats in Beijingâ€"and what the U.S. and China will do about itâ€"throws new tensions into one of the globe's closely watched bilateral relations. The two capitals are already struggling to find common ground on issues ranging from Iran's nuclear program to the international effort to unseat Syrian President Bashar al-Assad.

Mrs. Clinton's meetings on Thursday and Friday with her Chinese counterparts, as part of the annual Strategic and Economic Dialogue, are further complicated by the elections and political transitions taking place in both Washington and Beijing this year. These domestic considerations could risk undercutting Mrs. Clinton's ability to fashion an ending to Mr. Chen's saga as well as to addressing other core strategic issues, the current and former U.S. officials worry.

If Mr. Chen's situation isn't resolved this week, the U.S. and China could be locked into a standoff over his status, these people worry.

"The stakes are very high primarily because of the transition years in both countries," said Chris Johnson, who served as a top China analyst at the Central Intelligence Agency before retiring in April. "Now, this has probably become the most important test of the China relationship in the Obama administration's entire tenure."

On Monday, the Obama administration and Beijing both maintained their strict policies of refusing to discuss Mr. Chen's status or any negotiations underway to end his apparent stay under U.S. protection.

Behind the scenes, the Obama administration has accelerated its efforts to defuse the Chen issue before the arrival of Mrs. Clinton, Treasury Secretary Timothy Geithner and a larger American delegation in Beijing on Wednesday to take part in the policy dialogue, according to officials briefed on the diplomacy.

The State Department dispatched its top Asia envoy, Assistant Secretary of State Kurt Campbell, to China over the weekend to discuss Mr. Chen's status with Chinese diplomats, according to these officials. Mrs. Clinton led internal policy discussions aimed at finding a way to resolve the emerging crisis.

Mr. Obama and Mrs. Clinton both appeared Monday to try to ease tensions with Beijing.

"We actually believe China will be stronger as it opens up and liberalizes its own system," Mr. Obama said at a joint press conference with Japanese Prime Minister Yoshihiko Noda at the White House. "We want China to be strong, we want it to be prosperous and we are very pleased with all the areas of cooperation that we have been able to engage in."

Experts on China saw two potential ways to resolve the crisis over Mr. Chen. One would be for Beijing to let the blind human-rights lawyer and his family emigrate to the U.S. The other would see Mr. Chen end his apparent stay under U.S. protection in exchange for guarantees from China that he wouldn't be arrested or harassed if he remained inside the country.

But each approach has its obstacles. Friends of Mr. Chen said he didn't want to seek political asylum outside of China. And there are concerns that hard-liners in China's government, already worried about mounting political scandals, could refuse to offer Washington any guarantees on protecting Mr. Chen, out of fear of appearing weak.

U.S.-China relations already have been tested in recent months by a proposed new American arms sale to Taiwan and intensified efforts by Washington to strengthen military alliances with Asian allies, including Japan, the Philippines and Australia.

The Obama administration has also been ensnared in an internal Chinese political row after the police chief of Chongqing briefly sought refuge at the American consulate in Chengdu in February. The official is said to have passed on information about alleged corruption by the powerful Community Party chief of Chongqing, Bo Xilai, who has since been stripped of his titles. Mr. Bo's fall is seen having broad implications for China's political transition this year.

"To me, the worst outcome is that this will play in a way that China won't let us take Chen out of the country, and they won't insure his security," said Kenneth Lieberthal of the Brookings Institution, who was a top Asia policy official under former President Bill Clinton. "Then we have a long-term irritant in U.S-China relations, which is what the Chinese hard-liners want."

Mrs. Clinton's mission to China this week contrasts sharply with her 2009 trip, her first as secretary of state, when she was widely criticized for downplaying the U.S.'s human-rights concerns.

At the time, the Obama administration was largely focused on gaining Beijing's support for ending the global economic crisis and containing the nuclear ambitions of Iran and North Korea.

Since then, Mrs. Clinton has played a leading role in trying to integrate China into international efforts to promote environmental and business standards, as well as to curb the spread of weapons of mass destruction.

But she is taking very public positions aimed at checking Chinese power, particularly in the South China Sea and Africa.

In the process, Mrs. Clinton has emerged as the most influential secretary of state on China in a generation. "It has been almost 20 years since the State Department played such a major role in running China policy," said Mr. Johnson, who is now a China scholar at the Center for Strategic and International Studies in Washington.

Still, a number of China experts said the political scandals engulfing China in recent months could force the Obama administration to significantly rethink its policies toward the country.

Much of the focus, these officials said, has taken for granted Beijing maintaining political unity and cementing itself as a world power. But now there is a growing belief that China could be headed for a growing period of political and economic turmoil.

"U.S. policy has had one go button: dealing with a growing, one-party China," said Daniel Blumenthal of the American Enterprise Institute, a conservative Washington think tank. "Clearly the events of the past few months show this might not be the case."

â€"Carol E. Lee and Sudeep Reddy contributed to this article.

Write to Jay Solomon at jay.solomon@wsj.com

On the Agenda

Additional aims of U.S. officials' visit to Beijing:

Intensify pressure on North Korea to stop possible nuclear test, and on Iranian finances

Weaken China's support for Syria's Bashar al-Assad

Enlist China in establishing peace between the Sudans

Improve U.S. firms' access to Chinese markets, open up China's financial system, which is dominated by state banks

Continue advances in China's currency policy

US business hopes rise on Beijing reform vows - Reuters

Mon Apr 30, 2012 5:17pm EDT

(Fixes typo in 5th paragraph, changing "ban" to "band")

* U.S. businesses see fresh commitment to economic reforms

* U.S. firms not yet worried about fallout from Chinese dissident

* U.S. lawmakers more focused on market access than yuan

By Rachelle Younglai

WASHINGTON, April 30 (Reuters) - U.S. businesses are optimistic that vows of economic reform by Beijing will lead to an opening of China's financial system, and they are not worried diplomatic strains over a Chinese dissident will undermine high-level talks later this week.

Despite tensions over blind Chinese dissident Chen Guangcheng, who escaped house arrest last week and is believed to be under U.S. protection in Beijing, U.S. Treasury Secretary Timothy Geithner and U.S. Secretary of State Hillary Clinton are still heading to Beijing for annual meetings.

"The fact that the trip is going forward for both cabinet secretaries, I think is a sign that they are planning on doing some work," said Erin Ennis, vice president with the U.S.-China Business Council.

The council, which represents some 240 large companies that do business with China such as Dow Chemical, Ford Motor and Apple, wants China to reduce investment barriers and foreign ownership restrictions, among other things.

Over the past few months, the Chinese government has pledged to improve the climate for investors, admitted its banks are a monopoly, widened the trading band for its currency and said it was time to allow markets to set interest rates.

The vows of reform from top Chinese regulators and Chinese Premier Wen Jiabao have given U.S. businesses hope that Beijing will start addressing their long list of complaints and make it easier for them to invest and compete in China.

"We see this as a very significant and positive development for China and the United States," said Rob Nichols, the chairman of Engage-China, a coalition of 12 powerful trade and lobbying groups representing every part of the U.S. financial sector.

U.S. financial firms, which have long pressed for more access to China's state-dominated market, have sensed a change in Beijing's commitment to reform, and they want Geithner to seize the moment when he meets with top Chinese officials in Beijing on Thursday and Friday.

Expanding opportunities for U.S. companies, leveling the playing field for American firms and liberalizing China's finance sector top Geithner's list of topics to tackle at the fourth so-called Strategic and Economic Dialogue talks.

Engage-China traces Beijing's new-found reform commitment to a World Bank report released in February that warned that China's economic model was outdated and, if unattended, could precipitate a financial and fiscal crisis.

The report, requested by Beijing and co-authored by an influential Chinese government think tank, urged an overhaul in the structure of China's economy, in part by privatizing its state-owned enterprises, to keep income and productivity rising.

"There is some hope that we will see some greater liberalization that can benefit U.S. companies, particularly in financial services," said Jeremie Waterman, executive director of China policy at the U.S. Chamber of Commerce.

While the Chamber, the biggest U.S. business lobby, has been a frequent critic of the Obama administration, it says it is largely in synch with the White House on China policy and gives it credit for deepening ties with Beijing.

MARKET ACCESS THE FOCUS, NOT CURRENCY

There also appears to be some change in sentiment toward Beijing among traditionally hostile lawmakers in Washington, who are shifting their focus away from what they view as China's undervalued yuan currency and toward issues of market access.

It is not clear whether lawmakers have been influenced by Beijing's recent comments on financial reform, the wider yuan trading band or the fact that the currency has appreciated 40 percent against the U.S. dollar since China stopped pegging the yuan to the greenback in 2005.

But in letters to Geithner ahead of the talks, lawmakers have refrained from criticizing China's currency practices.

"Fair and competitive access to China's fast-growing middle class and business sector represents an enormous opportunity for American manufacturers, service providers and farmers," said one letter signed by an eclectic group of lawmakers that included Democrats, Republicans and ultra-conservative Tea Party representatives.

David Lampton, a professor at John Hopkins University and director of its China studies program, believes the rise in the yuan has helped take the issue off the table for lawmakers.

"It appears that market access and China's interest rate, the price of money broadly speaking, and subsidies are going to be the new focus of discussions in the future," he said.

Since 2005, U.S. lawmakers have repeatedly threatened legislation that would punish Chinese exports with tariffs designed to offset the effect of China's stockpiling of U.S. dollars to hold down the value of the yuan. A bill aimed at forcing China to allow its currency to appreciate more rapidly passed the Senate last year, much to Beijing's dismay.

Republican Senator Mike Johanns, who voted in favor of the Senate's currency bill, urged the administration to work with the Chinese government as it reforms and diversifies its financial sector.

"If they do, they will find allies" in the U.S. Congress, Johanns told Reuters. "As our economy continues to struggle and unemployment remains unacceptably high, expanding our economic markets is a common-sense way to spur job creation," he said.

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China security chief down but not out after blind dissident's escape - Chicago Tribune

BEIJING (Reuters) - Strike two against China's once invulnerable domestic security chief, Zhou Yongkang.

An audacious escape by blind dissident Chen Guangcheng is the second uproar this year to hit Zhou, who has expanded China's policing apparatus into a vast, costly and - now for all the world to see - a flawed tool of Communist Party control.

But even one of the biggest domestic security embarrassments in more than a decade is unlikely to knock him out before a party congress late this year that will appoint successors to him and other retiring leaders, said several experts.

The question will be whether his successor gets to rethink his legacy and rein in the domestic security establishment whose $110 billion budget exceeds the People's Liberation Army's.

Chen outfoxed a cordon of guards and security cameras to flee home imprisonment in Shandong province in east China, escaping to what supporters have said is U.S. protection in Beijing. His feat was a rebuff to Zhou's security forces and it threatens to turn into a standoff with Washington.

Zhou was already bruised by a scandal in Chongqing in southwest China, after that city's former police chief, Wang Lijun, fled into a U.S. diplomatic compound in February for more than 24 hours. Wang revealed allegations of murder and corruption that have felled Bo Xilai, the ambitious Chongqing party chief who had courted Zhou as a patron.

The domestic security establishment was humiliated in 1999, when members of the Falun Gong spiritual movement held a surprise protest around the party leaders' compound in Beijing. Although smaller in scale, the two latest incidents are also embarrassing setbacks for the guardians of stability.

"All of the recent astonishing episodes - police brutality in Chongqing and Shandong, Wang Lijun's rise and his attempted defection to the U.S. consulate, and Chen Guangcheng's adventurous escape - have revealed severe flaws of the Chinese security system," said Cheng Li, an expert on Chinese politics at the Brookings Institution in Washington D.C.

"Zhou Yongkang, as the leader in charge of this functional area, deserves some blame," Li said in emailed comments.

EXTREME CAUTION

But Li added that China's top leadership was extremely cautious and hesitant to fire more senior leaders, especially someone whose status was even higher than Bo.

Since 2007, Zhou has been the member of the Politburo Standing Committee - the party's core council of power - who steers the police, law and security agencies.

The recent crises have intensified long-standing criticisms in China that Zhou's fiefdom has grown too powerful, unaccountable and yet incapable of meeting the party's expectations of defending social stability.

"You can't separate the case of Chen Guangcheng from Zhou Yongkang and his making stability preservation a national policy that has overridden all boundaries and rules," said Pu Zhiqiang, a lawyer in Beijing who takes on contentious cases about human rights and freedom of speech.

"This all comes down to Zhou Yongkang's policies for social control and domestic security, and this shows that in the end they can't work," added Pu, who said he hoped China's next leaders would rein in what they call the "stability preservation" apparatus after taking power from later this year.

Despite Internet-fed rumors that Zhou could fall because of ties to the disgraced Bo, he remains a hulking presence in politics. His recent regular appearances and speeches appear intended to show he remains out of political danger.

Zhou, 69, must retire at the forthcoming party congress, and ousting him before then could fan panic discord at a vulnerable time, said Xie Yue, a professor of political science at Tongji University in Shanghai. Xie studies domestic security.

"It is rumored that Zhou Yongkang has been under pressure internally, and the Chen Guangcheng incident offers more reasons to criticize him," Xie said in a telephone interview.

"But the priority is a smooth transition for the 18th Party Congress, and if Zhou Yongkang was ousted before then, that could be too much of a shock for the handover of power by the top levels of the Communist Party," said Xie.

Escape Poses New Riddle for US, China - Wall Street Journal

By JOSH CHIN

BEIJINGâ€"Activist Chen Guangcheng's apparent unwillingness to leave China could complicate any negotiations between Washington and Beijing over his fate, bringing the two sides into territory that has been largely uncharted in previous bids by Chinese dissidents seeking U.S. help.

China-U.S. relations could hit a tense point as speculation rises that Chinese activist Chen Guangcheng is being sheltered at the U.S. Embassy in Beijing. The WSJ's Deborah Kan speaks to reporter Josh Chin about what--if any--options the U.S. has.

Chinese officials maintained their silence Monday about the location of Mr. Chen, the blind activist who acquaintances say escaped from his guarded home last week and made his way to Beijing. These people say they believe Mr. Chen sought U.S. protection. The U.S. Embassy in Beijing, which hasn't commented on the assertion but also hasn't denied it, also remained silent on the issue Monday.

Mr. Chen earned official ire as a critic of forced abortions under China's one-child policy and had been kept under virtual house arrest since September 2010. In statements, he has said local officials and plainclothes guards confined him to his home without charge or formal arrest.

Chinese authorities continue to probe his escape. On Monday, they released activist and Beijing-based scholar Guo Yushan, who says he helped Mr. Chen flee.

"They asked every question they could about Chen Guangcheng and wanted every detail about his escape," said Mr. Guo, who said police had held him for 50 hours for an interrogation process he said was long but civilized.

Activists say they fear for the safety of Mr. Chen's wife and young daughter, who remained in the family home when the activist fled. The European Union on Monday called on China "to exercise utmost restraint in dealing with the matter, including avoiding harassment of his family members or any person associated with him."

Mr. Chen's escape threatens to overshadow high-level talks involving U.S. Secretary of State Hillary Clinton and Treasury Secretary Timothy Geithner scheduled to take place in Beijing later this week.

Complicating all of those concerns, China analysts and human-rights experts say, is Mr. Chen's strong desire to remain in China.

"He went to the embassy not to seek asylum, but for safety," said Hu Jia, an environmental and human-rights who said he met with Mr. Chen after he arrived in Beijing and helped decide, in discussions with other activists, that Mr. Chen should be moved to the U.S. mission.

Mr. Chen appeared to lay the groundwork for being allowed to stay, some legal analysts say, in the video he released after his escape. In it, he cast local officials as flouting the law for keeping him under what he characterized as a brutal form of informal house arrest, but avoided denigrating the central government.

Agence France-Presse/Getty Images

Chinese rights activist Chen Guangcheng is in the U.S. embassy in Beijing but is not seeking asylum, fellow dissident Hu Jia said raising the specter of a drawn-out China-U.S. diplomatic standoff. Above, Chinese paramilitary guards march from the U.S. embassy in Beijing Monday.

For Mr. Chen to stay in China, friends say, Beijing would need to provide him with an iron-clad guarantee of safety for himself and his family, while vigorously pursuing the people allegedly responsible for mistreating him.

"Without those promises, he would be grabbed and taken away as soon as he left the embassy," Mr. Hu said.

Should Mr. Chen in fact be under U.S. protection, agreeing to such a deal could prove politically risky for the Obama administration, experts say.

"There's not a lot of precedent for the U.S. treating China as a good-faith negotiating partner on human-rights issues," says Joshua Rosenzweig, a Hong Kong-based human-rights researcher at the Chinese University of Hong Kong. The Chinese government might be sincere in promising to protect Mr. Chen and his family, he said, "but the way the case has been handled up till now makes it hard to trust any commitments they make to rule of law."

Susan Shirk, who served as a deputy assistant state secretary under Bill Clinton, says that although allowing Mr. Chen to stay in China "would be the best outcome," she believes the lack of any mechanism that would allow the U.S. to monitor and ensure his safety was highly problematic.

"We're not going to let him walk out of the embassy with just a handshake from the Chinese government," she said.

The two governments have successfully negotiated the release of dissidents to the U.S. in the past. But only once have those negotiations involved a dissident being harbored by the U.S. on Chinese soil. That was in 1989, when the U.S. embassy sheltered the late astrophysicist Fang Lizhi and his wife in the wake of the Tiananmen Square uprisings.

The couple would spend roughly a year inside the embassy, departing for the U.S. in 1990 after tense negotiations between Washington and Beijing and an offer from Japan to provide aid to China in exchange for their release.

But Mr. Fang's case is of little use as a roadmap, said Human Rights Watch Senior Asia Researcher Phelim Kline.

"To a large extent this is terra nova. It's a different China than you had in 1989," he said. Whereas Beijing was diplomatically under siege following the 1989 crackdown, the combination of China's fast economic growth with its decisive handling of the 2008 financial crisis has given many in Beijing a new confidence.

While simply allowing Mr. Chen to leave might appeal to many Chinese leaders as a way of sidelining him, analysts say, others might view it as a U.S. victory. Additionally, Beijing wouldn't relish any appearance it is kowtowing to Washington just before its sensitive once-a-decade leadership transition beginning late this year.

"If they were to let him go, what does that mean? That means Beijing will probably be succumbing to any such attempt to seek asylum in the American Embassy," said Zhu Feng, an expert on U.S.-China relations at Beijing University.

Write to Josh Chin at josh.chin@wsj.com

China Eastern to buy 20 Boeing 777 jets - USA TODAY (blog)

HONG KONG (AP) â€" China Eastern Airlines is buying 20 Boeing 777 jets worth nearly $6 billion while also selling five Airbus A340s to the U.S. plane maker because they're costlier to run, the Shanghai-based airline said Monday.

The airline said it's selling the Airbus A340-600 airplanes worth $708 million to Boeing because they have high operating costs and "relatively weak route competitiveness." The Airbus jets are about 8.3 years old, on average, and fly long-haul routes to New York and Los Angeles.

China Eastern said list price of the 777-300ERs is $5.94 billion but it negotiated a discount. Airlines routinely get discounts from aircraft makers, and the final selling price for aircraft is rarely disclosed.

Boeing said last week the deal needs Chinese government approval.

The new jets will be delivered in stages from 2014 to 2018. The airline will pay for them using working capital, bank loans and other sources of financing. The 777 is a twin-engine plane designed for long trips. It carries 365 passengers up to 7,930 nautical miles.

The 777s will be used to meet increasing demand on international long-haul routes, the airline said.

The Airbus A340-600 is a four-engine plane that can carry about the same number of passengers and travel the same distance as the 777.

The unaudited book value of the five Airbus jets China Eastern is selling was approximately 4.47 billion yuan ($708 million) at the end of April. They'll be delivered to Boeing in stages from 2014 to 2015.

Boeing spokesman Yukui Wang would not comment on the deal to buy China Eastern's second-hand Airbus jets. But he said the company has in the past bought jets made by other plane makers and then sold them to other companies.

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Obama, Silent on Dissident, Urges Freedom in China - New York Times

Jason Lee/Reuters

Paramilitary police officers patrolled near the United States Embassy, where it was thought that Chen Guangcheng was staying.

WASHINGTON â€" The Obama administration rushed to contain a growing diplomatic crisis between the United States and China, sending a senior diplomat to Beijing to discuss the fate of a blind dissident who fled house arrest last week.

Amid intense secrecy, including a nearly blanket refusal to comment, the administration sought to negotiate over the safety of the dissident, Chen Guangcheng, who is said to be in American hands in Beijing â€" though it remained unclear late Sunday whether he was in the embassy, in a diplomatic residence, or somewhere else.

The senior diplomat, Kurt M. Campbell, an assistant secretary of state, arrived Sunday to meet with Chinese officials concerning Mr. Chen’s case, and to try to keep the matter from undermining the administration’s longstanding effort to improve economic and security relations with China, senior officials and diplomats in Washington and Beijing said.

A senior American official said that China’s leadership met Sunday to work out their response to Mr. Chen’s escape before scheduled meetings this week with Secretary of State Hillary Rodham Clinton and Treasury Secretary Timothy F. Geithner. Mrs. Clinton is due to leave Washington for China on Monday night.

“They’re trying to figure out what they’re going to tell Hillary Clinton,” the official said of the Chinese leaders, speaking on the condition of anonymity because of the diplomatic delicacy surrounding the case. “We’d like to know as much as we can before she leaves.”

The sensitivities of Mr. Chen’s case reverberated beyond Chinese-United States relations. In a move that risked offending the Chinese authorities, who have gone to extraordinary lengths to keep the news of his escape quiet, the European Union’s China delegation issued a statement Monday that it was closely following events surrounding Mr. Chen.

“Human rights defenders should be treated in full compliance with Chinese laws and constitution,” the statement said. “We call on the Chinese authorities to exercise utmost restraint in dealing with the matter, including avoiding harassment of his family members or any person associated with him.”

The Obama administration’s effort to contain the crisis â€" the State Department declined to confirm that Mr. Campbell was in China, even though he was photographed in a Marriott hotel in Beijing â€" underscored the political challenge facing President Obama, at home and abroad.

“This is the greatest test in bilateral relations in years, probably going back to ’89,” said Christopher K. Johnson of the Center for Strategic and International Studies in Washington, who was until recently a senior China analyst at the Central Intelligence Agency, referring to the year of the crackdown on student protests in Tiananmen Square. He noted that the relationship had weathered tense moments since then, like the forced landing of a Navy spy plane on Hainan Island in 2001 after a midair encounter with a Chinese fighter jet.

Mitt Romney, the presumptive Republican presidential nominee, called for the administration to “take every measure” to protect Mr. Chen and his family. While he did not address the handling of the case, he said the matter demonstrated the need for unflinching American support for human rights in China.

“Any serious U.S. policy toward China must confront the facts of the Chinese government’s denial of political liberties, its one-child policy and other violation of human rights,” Mr. Romney said in a statement on Sunday, his first remarks on the issue since Mr. Chen’s escape was reported Friday.

Mr. Chen, 40, became famous because of his strong opposition to forced abortions and sterilizations conducted as part of China’s policy of limiting families to one child per couple. “Our country must play a strong role in urging reform in China and supporting those fighting for the freedoms we enjoy,” Mr. Romney said.

Steven Lee Myers reported from Washington, and Jane Perlez from Beijing.

Obama's abysmal China policy is met by Romney's reticence - Washington Post (blog)

The Obama administration’s thinking (echoed by the foreign policy establishment and the media) on the fate of dissident Chen Guangcheng was summed up Sunday by White House counterterrorism advisor John O. Brennan, who opined that a “balance” had to be struck between Chen’s fate and positive relations with China. As the Wall Street Journal put it: “Sheltering Mr. Chen would present the U.S. with a dilemma. Keeping Mr. Chen at a U.S. facility could strain relations with China. Turning over Mr. Chen to Chinese authorities might subject him to harsh punishment, which could be politically damaging to the Obama administration.”

In other words, human rights and defense of our ally Taiwan “complicate” our relationship with China. If only we could just push aside our national interests, things would go swimmingly with the Chinese rulers. It is not China’s problem, you see, but ours when we are confronted with a human rights situation. The “dilemma” is how to ignore China’s unacceptable behavior, I suppose.

This is terribly misguided and highlights the central flaw at the heart of Obama’s China policy, and indeed, his entire foreign policy. Both are based on the notion that we can “get along” with tyrannical regimes by downplaying conflict, keeping mum on human rights, and not provoking the ire of aggressive leaders.

We should be framing the Chen situation this way: If China wants to have positive relations with the United States, it must not retaliate against Chen, his family and other dissidents; doing so risks negative consequences for the Chinese.

Instead, we are wringing our hands trying to figure out how not to annoy the Chinese, off-load Chen and get back to “better relations” (i.e., appeasement of the Chinese dictatorship.)

The notion that we will lose China’s “cooperation” on other matters is farcical. The Chinese have blocked action to pressure Bashar al-Assad. The Chinese have done nothing to restrain the North Koreans, who shoot off rockets (however incompetently) without fear of retribution. On Iran, Reuters reports: “China is considering sovereign guarantees for its ships to enable the world’s second-biggest oil consumer to continue importing Iranian crude after new EU sanctions come into effect in July, the head of China’s shipowners’ association said.”

In sum, the administration has the perspective that “good” relations with Russia and China require subordination of U.S. interests and of our traditional defense of human rights. So we praise Vladi­mir Putin after the stolen presidential election. The administration opposes sanctions denying visas to Russian human rights abuses. And Chen is a “problem” â€" for us.

This cowering foreign policy is not only morally indefensible, but strategically foolhardy. We sacrifice our interests, encouraging more bad behavior by despotic regimes, which, in turn, means we must ignore further affronts to our interests and values. The downward spiral continues, as we sacrifice our moral standing without furthering any strategic interests. In fact, as we ignore human rights abuses, we set back our strategic goals, signaling to the Chinese that we will tolerate anti-American behavior (cyberterrorism, naval aggression in Asia, support for Iran) so long as we can void “conflict.”

Mitt Romney issued a statement over the weekend on behalf of Chen. This is good. But what is missing is a comprehensive and coherent critique of Obama’s China policy and, more generally, his stance toward dictatorial regimes.

Last year, Romney gave a forceful foreign policy speech and released a white paper, which included this on China: “If the United States fails to support dissidents out of fear of offending the Chinese government, we will merely embolden China’s leaders. We certainly should not have relegated the future of freedom to second or third place, as Secretary of State Clinton did in 2009 when she publicly declared that the Obama administration would not let U.S. concerns about China’s human rights record interfere with cooperation ‘on the global economic crisis [and] the global climate change crisis.’ ”

Since then, Romney’s foreign policy pronouncements have been sporadic, defensive and incomplete. It is not for lack of brilliant and competent foreign policy experts. What is lacking is the will and determination to communicate on a sustained basis Romney’s foreign policy views and highlight the contrasts between him and the president. It’s high time the campaign went on offense and stopped merely deflecting Obama’s attacks. In short, the Romney team needs to “man up” on national security.

China Shuts Coke Plant Over Chlorine - Wall Street Journal

By LAURIE BURKITT

BEIJINGâ€"Food safety regulators in northern China have shut down production at a beverage plant owned by Coca-Cola Co. as punishment after finding chlorine in a batch of drinks made in February.

In a statement on Saturday, the quality regulator in the Chinese province of Shanxi said it found during an April inspection that a batch of drinks produced by Coca-Cola (Shanxi) Beverage Ltd. was made with water containing chlorine. The statement from the Shanxi Provincial Bureau of Quality and Technical Supervision refers to the suspension as a penalty for the chlorine levels.

The statement on the bureau's website didn't detail the findings and didn't say when the plant will resume production.

A Coca-Cola spokeswoman said the Atlanta-based company found only trace levels of chlorine in the batch made between Feb. 4 and Feb. 8. The levels were just below the national standard of purified water in China of 0.005 milligrams per liter, the spokeswoman said, adding that the chlorine level was below World Health Organization limits for drinking water.

But the company also said it is working to resolve quality and production issues at the plant, she said, adding "at no time did these issues affect the safety of our products in the market." The plant's suspension won't affect the company's business in China, the spokeswoman said.

A whistle-blower within Coca-Cola first reported the chlorine levels to local media, according to the state-owned Xinhua news agency.

The natural chemical chlorine is commonly used to kill bacteria in water treatment, but high levels can be hazardous to human health, according to the U.S. Centers for Disease Control and Prevention.

China's regulators have aimed to improve the country's food safety in recent years and have frequently waged crackdowns against food-safety violators. Problems persisted years after the 2008 tainted-milk scandal in which six children were killed and 300,000 others fell ill after drinking infant formula the contained the chemical melamine.

China is a critical growth market for Coca-Cola and accounts for 7% of the company's global sales by volume. Executives say the company plans to invest more than $4 billion in the next three years.

Coca-Cola reported in mid April a 9% volume increase from China, its second-largest growth market behind India during the first quarter.

Mystery and Rumor Dominate China in the Time of Bo - BusinessWeek

On a rooftop bar in Beijing, a twenty-something sips a raspberry Margarita and dishes the latest dirt on the scandal that has gripped China’s capital, if not most of the country. “I’ve heard the police and the military are supporting two different factions [vying for political power],” she says.  “Lots of people who were close to [disgraced former city chief] Bo Xilai are being arrested in Chongqing.” The next evening, a retired party member whispers conspiratorially: “Have you heard? Jiang Zemin has been spending time in Beijing,” referring to the former top leader of China. Jiang lives in Shanghai and, although he retired almost 10 years ago, still is the most powerful player in China’s byzantine politics. “He’s making sure his people are O.K.”

A taxi driver scowls when asked about the intrigue surrounding the upcoming leadership transition and the fate of Bo: “Those who are capable don’t get promoted in China. Those who aren’t, they are the ones who run this country,” he says. “That’s how our system works.” A month earlier, a worried American investment banker called from his office in Shanghai to query a Beijing-based journalist: “I’ve been hearing that there is a coup happening up there and tanks and soldiers are on the streetâ€"I know this sounds crazy, but do you see any signs of that at all? My e-mail has been lighting up with worried clients asking about the coup all morning.”

This is what it is like to be living in Beijing in the time of Bo. China is undergoing its biggest political crisis since the 1989 Tiananmen massacre, as wild supposition mixes with outlandish facts to shift the city’s rumor mill into overdrive. Young Chinese in stylish bars, antsy American investors, civil servants, students, and entrepreneurs all swap stories of political backstabbing and collusion. There’s a feeling of nervous anticipation for what lies ahead. The fact that no one seems to know how things will unfold makes the frisson only stronger.

It was already bound to be a time of heated gossip and innuendo. China is readying itself for a once-every-five-year Party Congress, when the country’s Communist faithful converge on the capital to discuss what path to guide China along. And this one, likely to be held in October or November, will see an unprecedented shift in top leadership; seven of the nine-member supreme body that runs China, the Standing Committee of the Politburo, will be replaced. And a new party secretary and premier, expected to be Xi Jinping, 58, and Li Keqiang, 56, respectively, will take charge by early next year. But this one, the fourth Party Congress since I arrived in Beijing in early 1995, has seen the political machinations ratcheted to new heights.

That’s because of the unprecedented downfall of Bo and his wife Gu Kailai, amid reports of corruption, money laundering, and the suspected murder of a British citizen. It all broke open after Bo’s former police chief apparently attempted to seek political asylum in a U.S. consulate and pass along who knows what secrets concerning the inner workings of China’s Communist Party elite. Now, for extra excitement, throw in the fact that blind human rights activist Chen Guangcheng, after fleeing the local thugs who had him under house arrest for the past year and a half, appears to have taken refuge with U.S. officials stationed in Beijing.

“On the surface China can have years of seeming tranquility. But you must not mistake that with the idea that it has harmonious consensus-based decision-making,” says Victor Shih, a political scientist who studies China’s elite politics at Northwestern University. “There is all kinds of maneuvering behind the scenes that only occasionally appears in publicâ€"which is what we are seeing with the recent incidents in China.”

What is it about this political scandal that has so seized everyone’s attention? Well, for the intelligentsia, entrepreneurs, state enterprise managers, civil servants, and the majority who have benefited in some way from the party’s stewardship of China, this may be a turning point. That’s because the implicit bargain they had with China’s rulers has been ruptured.

It went something like this: Even though we don’t have any say in policies nor get to choose our leaders, and we are well aware that many of them are corrupt, we can count on the fact they will control the worst excesses of official graft. They will keep the economy growing, and crucial to that, there will be no unpleasant surprises that could derail the course of getting richer. And in this key transition year, the party will anoint new leaders, perhaps equally unexciting ones, but certainly capable enough, to keep China moving forward.

There is plenty that China’s elites are already worried about, making the prospect of instability at the top even more frightening. That includes surging protests by upset workers and farmers enraged at corrupt officials who grab their land for development. So-called mass incidentsâ€"riots, strikes, and protestsâ€"doubled in five years, to 180,000 in 2010, according to Sun Liping, a professor at Beijing’s Tsinghua University. Last year’s Wukan village uprising over land grabs and the death of a protester suggested to many that local party officials are losing control over their jurisdictions.

And the fact that China’s wealthiest, including many corrupt officials, are increasingly opting for overseas citizenship for themselves or their family members, scares them, too. Last year more than 3,000 Chinese citizens applied for investor visas to the U.S., up from 270 in 2007. That’s 78 percent of the total applicant pool for this type of visa, according to U.S. Citizenship and Immigration Services.

Now, with the fall of Bo and the intrigue that has followed, the elites are faced with the alarming fact that the party may not be as fully in control as advertised, and that deep divisions split top leaders. That infighting for the first time has burst into public view as officials and factions vied for influence by feeding rumors and calumny onto the Web. Then came the Xinhua announcement about the purported crimes of Bo and his wife. The interpretation of many: Oh my God, now they are telling us openly that top officials and their families are so brazen they can murder people, and they are far more corrupt than even we had imagined in our most fevered spells of paranoia.

“They have kept society stable by bribing the society, in effect by buying the people,” says Jean-Pierre Cabestan, head of the department of government and international studies at Hong Kong Baptist University. “But how long is that sustainable now?”

China’s disenfranchised farmers, workers, and urban underclass have a different reaction. Some of them see the political downfall of Bo as an attempt by the party to curtail the income-leveling policies he pushed in Chongqing. Those included China’s largest push to build state-subsidized housing for the poor and reform of the hukou system to give farmers the same rights enjoyed by China’s urbanites.

China already is showing levels of inequality comparable to the Philippines and Russia and is far less egalitarian than Japan, the U.S., and even Eastern Europe, according to Li Shi, a professor at Beijing Normal University. Rural incomes are less than one-third those in cities, with the top 10 percent of urban Chinese earning about 23 times that of the poorest 10 percent, according to official figuresâ€"and those are almost certainly understated. China’s Gini coefficientâ€"a measure of worldwide income equalityâ€"worsened from below 0.3 a quarter-century ago to near 0.5 today, estimates Li.

“As Chairman Mao said as he was building the nation, the goal of our building a socialist society is to make sure that everyone has a job to do and food to eat, that everybody is wealthy together,” Bo said on March 9 during the National People’s Congress, before his dismissal. “If only a few people are rich, then we’ll slide into capitalism. We’ve failed. If a new capitalist class is created, then we’ll really have turned onto a wrong road.”

Much of the political ferment originates on China’s unruly Internet, now with 485 million users and 300 million registered microbloggers. Despite its best efforts, including sophisticated monitoring software and legions of self censors at Sina and Tencent, the two biggest hosts of China’s Twitter-like weibo, Beijing struggles to control what is posted online. Even the most remote villages usually have rundown Internet bars, often filled with choking cigarette smoke. And even those who don’t have access to the net are recycling information that often first appeared in an online posting. “It is the first real elite political problem for China in the Internet age,” says Bill Bishop, an independent analyst in Beijing who monitors China’s media and Internet. “Sina Weibo is more powerful than [national state-owned broadcaster] CCTV in how the message gets out to the public.”

The political intrigue gripping China “is incredible,” says Duncan Clark, chairman of the British Chamber of Commerce in China. “It is the most interesting and alarming thing that has happened in the almost 20 years I have been in China. Who knows what will come next?”

Shanghai, Shenzhen Exchanges to Cut A-Share Trading Fees - Bloomberg

China’s two stock exchanges will lower fees charged for trading yuan-denominated shares by 25 percent with effect from June 1, the nation’s securities regulator said in a statement on its website today.

The Shanghai and Shenzhen bourses will charge both buyers and sellers 0.087 percent of the transaction value, while the Shanghai branch of the China Securities Depository & Clearing Corp. will set transfer fees at 0.375 percent of transaction value, according to the China Securities Regulatory Commission.

China’s capital market has expanded over the years as the number of listed companies and stock trading volumes increase, paving the way for lower fees, the CSRC said. The changes will ease the burden on investors and spur the “healthy development” of the market, it said.

“The regulators are trying to revive and excite the trading in the A-share market, which has been a poor market over the last few years,” Khiem Do, the Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management (Asia) Ltd., which overseas about $10 billion, said by telephone. “The spirit of the change is obviously to get retail investors to go back into the A-share market and increase trading activity.”

The benchmark Shanghai Composite Index is up 9 percent in 2012, after slumping 33 percent in the previous two years.

About 8.95 billion A shares changed hands each day this year on the Shanghai stock exchange, while the daily trading average on the Shenzhen bourse was 3.5 billion shares. That’s a fraction of the 153 billion shares traded on the Hong Kong stock exchange each day, according to data compiled by Bloomberg.

Research is also being conducted to lower the cost of information disclosure and other operating fees, according to the CSRC’s statement.

To contact Bloomberg News staff for this story: Chua Baizhen in Beijing at bchua14@bloomberg.net; Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Shiyin Chen at schen37@bloomberg.net

Dissident's Fate at Issue as US Diplomat Talks With China - New York Times

Jason Lee/Reuters

Paramilitary police officers patrolled near the United States Embassy, where it was thought that Chen Guangcheng was staying.

WASHINGTON â€" The Obama administration rushed to contain a growing diplomatic crisis between the United States and China, sending a senior diplomat to Beijing to discuss the fate of a blind dissident who fled house arrest last week.

Amid intense secrecy, including a nearly blanket refusal to comment, the administration sought to negotiate over the safety of the dissident, Chen Guangcheng, who is said to be in American hands in Beijing â€" though it remained unclear late Sunday whether he was in the embassy, in a diplomatic residence, or somewhere else.

The senior diplomat, Kurt M. Campbell, an assistant secretary of state, arrived Sunday to meet with Chinese officials concerning Mr. Chen’s case, and to try to keep the matter from undermining the administration’s longstanding effort to improve economic and security relations with China, senior officials and diplomats in Washington and Beijing said.

A senior American official said that China’s leadership met Sunday to work out their response to Mr. Chen’s escape before scheduled meetings this week with Secretary of State Hillary Rodham Clinton and Treasury Secretary Timothy F. Geithner. Mrs. Clinton is due to leave Washington for China on Monday night.

“They’re trying to figure out what they’re going to tell Hillary Clinton,” the official said of the Chinese leaders, speaking on the condition of anonymity because of the diplomatic delicacy surrounding the case. “We’d like to know as much as we can before she leaves.”

The sensitivities of Mr. Chen’s case reverberated beyond Chinese-United States relations. In a move that risked offending the Chinese authorities, who have gone to extraordinary lengths to keep the news of his escape quiet, the European Union’s China delegation issued a statement Monday that it was closely following events surrounding Mr. Chen.

“Human rights defenders should be treated in full compliance with Chinese laws and constitution,” the statement said. “We call on the Chinese authorities to exercise utmost restraint in dealing with the matter, including avoiding harassment of his family members or any person associated with him.”

The Obama administration’s effort to contain the crisis â€" the State Department declined to confirm that Mr. Campbell was in China, even though he was photographed in a Marriott hotel in Beijing â€" underscored the political challenge facing President Obama, at home and abroad.

“This is the greatest test in bilateral relations in years, probably going back to ’89,” said Christopher K. Johnson of the Center for Strategic and International Studies in Washington, who was until recently a senior China analyst at the Central Intelligence Agency, referring to the year of the crackdown on student protests in Tiananmen Square. He noted that the relationship had weathered tense moments since then, like the forced landing of a Navy spy plane on Hainan Island in 2001 after a midair encounter with a Chinese fighter jet.

Mitt Romney, the presumptive Republican presidential nominee, called for the administration to “take every measure” to protect Mr. Chen and his family. While he did not address the handling of the case, he said the matter demonstrated the need for unflinching American support for human rights in China.

“Any serious U.S. policy toward China must confront the facts of the Chinese government’s denial of political liberties, its one-child policy and other violation of human rights,” Mr. Romney said in a statement on Sunday, his first remarks on the issue since Mr. Chen’s escape was reported Friday.

Mr. Chen, 40, became famous because of his strong opposition to forced abortions and sterilizations conducted as part of China’s policy of limiting families to one child per couple. “Our country must play a strong role in urging reform in China and supporting those fighting for the freedoms we enjoy,” Mr. Romney said.

Steven Lee Myers reported from Washington, and Jane Perlez from Beijing.

US-China talks may yield little - MarketWatch

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