BEIJING—The U.S. and China will try to reset an increasingly strained relationship, as senior officials meet in Beijing this week for talks on strategic and economic issues on which they have made scant progress over the past 12 months.

This time last year, Chinese and U.S. officials were hailing a new era of cooperative bilateral relations based on the personal rapport struck between Xi Jinping and Barack Obama at their first presidential summit in California in June 2013.

And yet neither side is anticipating progress on the core security issues of cybertheft, North Korea’s nuclear program and Asian maritime disputes during this year’s Strategic and Economic Dialogue on Wednesday and Thursday.

Nor are the annual talks expected to produce major breakthroughs on economic matters, such as market access and the value of the Chinese currency, officials and analysts say, though some expect a step forward in talks on a bilateral investment treaty.

Rather, U.S. Secretary of State John Kerry, Treasury Secretary Jacob Lew and a phalanx of lieutenants will make the 7,000-mile trip to Beijing to try to prevent the relationship from deteriorating further, analysts and officials say.

The hope on both sides, those people say, is that they can stabilize ties in time for a meeting between Presidents Xi and Obama at a summit of leaders from the Asian-Pacific region in Beijing in November.

“There seems to be a downward spiral in the relationship,” said David Dollar, a former Treasury representative in Beijing, who has worked on the dialogue in the past. “The S&ED talks could halt that downward spiral.”

The deterioration in relations in the past year is largely due to deep-rooted disagreements over cybersecurity and China’s recent efforts to enforce maritime claims in Asia that are disputed by countries including Japan and the Philippines, two U.S. treaty allies.

But some U.S. analysts and officials say the downturn in bilateral ties also reflects a lack of direction in China policy in Washington, where an administration in its final two years is preoccupied diplomatically by Syria, Iraq and Ukraine.

Ben Rhodes, the Deputy National Security Adviser for Strategic Communications, said last week that the relationship forged at last year’s summit allowed for differences, and the U.S. was still expecting progress from this week’s dialogue, according to a State Department transcript.

Other U.S. officials cited progress in areas including climate change and military dialogue, and said they were pushing for more on issues including an enhanced version of the Information Technology Agreement, or ITA, a global trade pact that eliminates tariffs on high-tech goods.

“Making concrete progress on the ITA would potentially have positive spillover effects on to other areas of cooperation,” said U.S. Trade Representative Michael Froman in an interview. “That concrete progress is within China’s grasp but the jury is still out as to whether they will grasp it.”

Senior Chinese officials said Monday that the positive momentum had continued since last year’s presidential summit. There, China sought to redefine the relationship as one between equal great powers that could avoid conflict by respecting each other’s core interests.

Achievements included expanding bilateral trade and investment, working together on nuclear issues on the Korean peninsula and China’s participation for the first time in ongoing U.S.-led naval exercises in Hawaii, they said.

But China Assistant Foreign Minister Zheng Zeguang said differences and friction persisted, citing recent “wrong remarks” by the U.S. on maritime and cyber issues that he said went against the goal of forging “a new type of major country relationship.”

He suggested that one of the most important issues for Washington, alleged Chinese cybertheft of U.S. corporate secrets, wasn’t on the formal agenda in Beijing, although U.S. officials say they will raise it as part of the broader dialogue.

At last year’s summit, U.S. officials declared the matter to be at the center of the relationship. That position was soon undermined by allegations of U.S. cyberspying fromEdward Snowden, a former National Security Agency contractor.

China then pulled out of a new cybersecurity working group in May after the U.S. indicted five Chinese military officers for allegedly hacking into U.S. companies to steal their trade secrets. Mr. Zheng described the indictment as a fabrication and urged the U.S. to stop cyber theft and espionage directed at China.

One of the outcomes of last year’s Strategic and Economic Dialogue was an agreement to restart negotiations on an investment treaty. But talks on that have been slow as China has put many areas for investment off limits, U.S. negotiators say. Chinese officials say their position is a first step as China’s bureaucrats have to get used to the idea of ceding control over investment decisions.

Recently, the Chinese government eased investment restrictions in a new Shanghai free-trade zone, which could be a precursor for a similar move on the investment treaty, analysts said.

Still, Mr. Lew appeared to be managing expectations ahead of this week’s talks.

“Most companies would recognize the value of incremental progress because they see the size of the Chinese economy,” he told executives last week at a meeting of the U.S. China Business Council, an organization of American companies.

“One doesn’t go from no access to full access.”

Mr. Lew said he would press China to continue to allow its currency, the yuan, to appreciate. Some economists have questioned whether China will maintain that trend as its economic growth rate slows. Beijing argues the currency’s value is now determined by the market, an assessment the U.S. challenges.

Another long-running issue Secretary Lew highlighted was intellectual property violations, on which Chinese authorities have penalized a number of firms, but the U.S. says more needs to be done. “We seem to take two steps forward and at least part of a step back,” Mr. Lew said.


By Jeremy Page and Ian Talley, July 7, 2014 in The Wall Street Journal