U.S. and Chinese officials agreed to give the yuan a foothold inAmerica while sparring over how to address excess capacity inChina's steel and aluminum industries, illustrating both theprogress being made and hurdles that remain in the nations'economic relationship.

Finishing two days of annual bilateral talks in Beijing onTuesday, China said it will let foreign institutions raise 250billion yuan (US$38 billion) in the U.S. to be invested in Chinesemarkets. China will also allow an American bank, which wasn'tidentified, to clear yuan transactions outside of the mainland,with U.S. Treasury Secretary Jacob J. Lew saying participation inthe yuan market opens an “important door.”

At the same time, progress was mixed on U.S. efforts to getChina to reduce overcapacity that America complains isdistorting global markets. Lew said there was a “good agreement” onsteel and the outcome from the capacity talks was “quite strong,”with China restating commitments and agreeing to let market forcesdetermine which facilities are creating excess production. Heexpressed disappointment on a lack of a similar conclusion onaluminum.

“They made clear their commitment to action, and we will stayvery much on it,” Lew said at a press briefing. “If we don't seeprogress, we will raise the issue again.”

The fitful progress on the economic side of the Obamaadministration's final Strategic and Economic Dialogue was mirroredin diplomatic discussions led by U.S. Secretary of State JohnKerry. While the two sides pledged more cooperation on NorthKorea's nuclear program, climate change, and commercial fishing inthe Arctic, they made no headway on resolving tensions over Chineseterritorial claims in the South China Sea.

A joint statement from the two sides on the economic talksrepeated last year's language that the Federal Reserve is expectedto raise interest rates and will “conduct policy in a transparentand, to the extent possible, predictable manner.” Fed Vice ChairmanStanley Fischer attended the talks.

More Trust Needed in U.S.-China Relationship

American and Chinese officials used the talks to discuss a widerange of issues including the global economy, financial stability,and regulatory cooperation, as well as open trade and investment.Policy makers from both countries emphasized that communicationbetween the U.S. and China continues to improve, though increasedcooperation and trust is still needed.

Lew reiterated the administration's desire for China to pressahead with its reform agenda, especially with regard to thecountry's transition to a market-based exchange rate. He praisedChina for committing “to continue market-oriented exchange-ratereform that allows for two-way flexibility, while stressing thatthere is no basis for sustained depreciation” of the yuan.

Chinese officials pushed back on U.S. concerns over excesscapacity, with Finance Minister Lou Jiwei saying in a pressbriefing that while the government is addressing the issue, theeconomy isn't centrally planned and private firms would not takeinstructions from the government. China Vice Premier Wang Yangnoted that in-depth discussions were needed to addressovercapacity.

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