China Agrees to Scale Back Currency Controls

As Chinese manufacturers produce more goods to meet growing domestic demand, China has agreed to scale back intervening in its currency market, .

Chinese Central Bank Governor Zhou Xiaochuan said, "We will allow market supply-and-demand relation to play a bigger role in determining the exchange rate, expand the floating range of the exchange rate, and increase the exchange rate's flexibility."

U.S. Treasury Secretary Jacob Lew says it is a win for both countries.

"It is fundamentally about the fairness of the trading system and the opportunity of U.S. workers and firms to compete fairly and Chinese consumers to have the purchasing power that goes with a fairly-valued currency," he said.

Cyber-security

At this Strategic and Economic Dialogue, U.S. and Chinese officials also discussed cyber-security following the U.S. indictment of five Chinese military officers on charges of cyber-espionage.

Secretary of State John Kerry said, "The loss of intellectual property through cyber has a chilling effect on innovation and investment. Incidents of cyber theft have harmed our businesses and threatened our nation's competitiveness."

Cyber-espionage is a sensitive topic for China, as its manufacturing strength outpaces innovation, according to American University professor Hillary Mann Leverett.

"Today, China is not a place that can innovate. And even though they are trying, they are not there," said Leverett. "And so, in part, they see this as the United States pushing its advantage and not allowing China essentially to copy, and then perfect, improve on, and learn to innovate that way."

South China Sea

U.S. and Chinese officials also discussed competing territorial claims in the South China Sea, where Vietnam says one of its patrols was rammed by China's coast guard near a Chinese oil rig in disputed waters. Resolving those rivalries peacefully should be part of what Kerry calls defining a new partnership between Washington and Beijing.

"It is not going to be defined by us carving up areas and suggesting there are spheres of influence," he said. "It is going to be defined by our mutual embrace of standards of global behavior and activity that protect the values and the interests that we have long worked by and the norms of international behavior."

Vietnam is working with the Philippines on legal challenges to Chinese claims in the South China Sea, where Beijing says Filipino plans to drill for natural gas are "illegal."

"Any foreign company, if it has not received China's permission, exploring oil and gas in waters under Chinese jurisdiction is illegal and invalid," said Chinese Foreign Ministry Spokesman Hong Lei.

While the United States is helping upgrade the Filipino navy, Washington says it is not taking a position on any of the rival claims in the South China Sea.