- Associated Press - Sunday, May 23, 2010

BEIJING (AP) — The United States hasn’t swayed China yet on the need to punish North Korea and Iran heading into high-level talks between American and Chinese officials on greater security and economic cooperation, a senior Obama administration official said Sunday.

With the two-day meetings beginning Monday, the two powers haven’t settled on how to deal with North Korea, blamed for the deadly sinking of a South Korean warship, the official said.

While an international report has found the North responsible, China isn’t convinced, said the official, who spoke on condition of anonymity to describe the conversation at a private dinner hosted by State Councilor Dai Bingguo for U.S. Secretary of State Hillary Rodham Clinton.

A second stalemate involves specifics about new U.N. penalties against Iran over its disputed nuclear program.

It’s evident the U.S. faces a struggle in securing China’s cooperation on both issues, expected to be the subject of intense consultations during the Beijing sessions. Mrs. Clinton and U.S. Treasury Secretary Timothy F. Geithner are leading the American delegation.

At the dinner, the official said, the American side made clear how serious the United States and its allies South Korea and Japan take the sinking of the Cheonan on March 26, which killed 46 sailors in the South’s worst military disaster since a truce ended the Korean War in 1953.

An international team of civilian and military investigators said in a report Thursday that a North Korean submarine fired a homing torpedo at the ship, ripping it in two. North Korea has denied any role.

The Americans also told the Chinese that it was important to work closely on the matter, which the United States and South Korea contend amounts to a breach of the Korean armistice. South Korea was expected to announce on Monday that it will take the issue to the U.N. Security Council.

The official would not discuss the steps that South Korea would announce, but said there had been close consultation between Washington and Seoul and that the United States would support the South’s position. China is not ready to take that step, still seeking proof of North Korean involvement.

China, North Korea’s primary ally and benefactor, holds a permanent, veto-wielding seat on the U.N. Security Council, making its backing for any penalties essential. Beijing has called the sinking “unfortunate” but has said little else publicly.

North Korea on Sunday threatened to “crush” South Korea and said the report was an “enormous fabrication” only designed to justify the South’s attempt to invade the North in collaboration with the United States.

On Iran, the U.S. official said China had agreed in principle to a new draft resolution of U.N. penalties over Tehran’s refusal to prove that its nuclear program is peaceful. Substantial work with Beijing on the specifics is ahead.

Details such as the names of Iranian companies and individuals subject to penalties are to appear in an as-yet unfinished part of the draft, the result of months of painstaking negotiations.

With major investments in Iran, China has resisting fresh penalties. Iran is under three sets of U.N. sanctions for failing to come clean about its nuclear program and halt uranium enrichment that can produce the fuel for an atomic weapon. Iran denies it is seeking nuclear weapons, saying its program is only for peaceful purposes.

Before the dinner, Mrs. Clinton stressed the economic angle to the talks, saying that she and Mr. Geithner would push Beijing to level the playing field for U.S. companies operating in China.

“For trade to work in any economy and for it to produce the benefits we know it can, there must be a level playing field where domestic and international companies can compete freely and openly,” she told Chinese officials and employees at a Boeing maintenance facility in Shanghai, where she spent two days before traveling to the capital.

Mrs. Clinton said the U.S. side would seek greater openness in regulations, nondiscrimination, fair access to markets and strong enforcement of intellectual property rights. Those are important elements in fulfilling President Obama’s pledge to double U.S. exports within five years and create 2 million jobs.

One issue likely to come up in the talks is the trade advantage Beijing has because of an undervalued Chinese currency.

As the European financial crisis deepens, Beijing appears to be pulling back from expected moves to loosen its currency’s peg to the U.S. dollar, saying the euro’s slide to four-year lows against the dollar is putting too heavy a burden on its own exporters.

Some economists say the yuan is undervalued by up to 40 percent against the dollar, giving Chinese exporters an unfair advantage in overseas markets.

Associated Press writer Hyung-jin Kim in Seoul contributed to this report.

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