Key US-China strategic and economic talks overshadowed by NKorea, Iran, Japan base issues

WASHINGTON (AP) — Secretary of State Hillary Rodham Clinton is embarking on a three-nation tour of Asia whose centerpiece — a new round of U.S.-China strategic and economic talks — is likely to be overshadowed by a crisis with North Korea, possible new sanctions on Iran and the debate over U.S. military bases in Japan.

There have been striking new developments on those three security fronts ahead of Clinton's Thursday departure for her fifth journey to Asia as America's top diplomat, particularly the release of a report blaming North Korea for the sinking of a South Korean warship. And, at each stop along her way — Japan, China and South Korea — these tough foreign policy problems are expected to draw the spotlight.

After meetings in Tokyo and a good-will visit to the World Expo in Shanghai on Friday and Saturday, Clinton will join Treasury Secretary Timothy Geithner in Beijing for two days of talks with Chinese leaders.

Those talks are intended to focus on improving cooperation between the two economic giants to cement the U.S. economic recovery, ease world financial woes and combat issues like climate change and terrorism.

Instead, the release of the report blaming North Korea for the March 26 sinking of the South Korean warship Cheonan and negotiations on a new U.N. Security Council resolution imposing fresh sanctions on Iran over its suspect nuclear program are expected to take center stage at Monday and Tuesday's talks in the Chinese capital.

The White House said late Wednesday that the ship sinking was an "act of aggression" that is "one more instance of North Korea's unacceptable behavior and defiance of international law." It called it "a challenge to international peace and security and ... a violation of the Armistice Agreement" that ended the Korean War.

The State Department said the evidence ruled out any alternative explanation and the United States was "already working very closely with our ally (South Korea) and consulting with our partners regarding appropriate steps."

In response to the report, North Korea warned it will wage "all-out war" if there is retaliation against it over the sinking, which killed 46 sailors. The North's Korean Central News Agency quoted a spokesman from the National Defense Commission as rejecting the findings as a "fabrication." It said Pyongyang would react to any punishment or sanctions with warfare.

Earlier, U.S. officials sought to minimize the distractive impact the sinking is expected to have on the second round of the so-called Strategic and Economic Dialogue with China. But with the Chinese holding the most leverage over reclusive North Korea, its support for any international response to Pyongyang will be critical to its success.

Kurt Campbell, the top U.S. diplomat for Asia, acknowledged that a main reason for Clinton's trip "will be to have the closest possible consultation with Japan, China and South Korea on the next phase" of the North Korean situation. He said it would be prime agenda item in Clinton's talks with Chinese President Hu Jintao, Foreign Minister Yang Jiechi and State Councilor Dai Bingguo.

"A central issue of discussion for Secretary Clinton with her interlocutors ... will be on their assessments of developments in North Korea and their reaction to the report," he said.

China's backing of new U.N. sanctions on Iran, something it traditionally has opposed, will also be a main topic. China has reluctantly agreed to support watered-down new economic penalties against Tehran.

The focus will be a far cry from the original intent of the economic and trade issues that were the reason the U.S.-China strategic talks were begun in 2006 by the Bush administration under then-Treasury Secretary Henry Paulson and expanded by the Obama administration in 2009.

The talks were intended to keep pressure on China to allow its currency to rise in value against the dollar as a way to narrow America's huge trade deficit with China, the largest trade gap the United States runs with any country.

Treasury officials insist the economic issues, including China's currency, will be a major part of the discussions next week, but they play down any suggestions that China might announce it is starting to let its currency, the yuan, rise in value against the dollar.

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AP Economics Writer Martin Crutsinger contributed to this report.