By Andrew Quinn

WASHINGTON (Reuters) - The U.S. House ofRepresentatives is poised to pass legislation Wednesday topressure China to let its yuan currency rise faster, fanningthe flames of a long-running dispute over trade and jobs.

The issue is one of a lengthening list sparking tensionbetween the two countries. Here are some questions and answersabout the U.S.-China relationship, which is growing morefractious as the two huge powers jostle for political andeconomic influence around the world.


Obama has said the U.S-China relationship will shape the21st century, and on nearly every front that is happening.

Trade between the two countries is flourishing, cross-borderinvestment is increasingly a two-way street and Washington andBeijing are taking halting steps toward diplomatic cooperationon issues such as Iran's nuclear program and the stand-off withNorth Korea.

The two have squared off over the future of the Internet,the military balance in East Asia, human rights and climatechange.

The breadth of the relationship has led some commentatorsto predict that China and the United States will ultimatelybecome a "Group of 2," setting the global agenda and sideliningthe Group of 20 which includes a broad range of developed anddeveloping countries.

That notion alarmed some of their traditional allies,though neither the United States nor China has embraced theidea.

But it is clear that their uneasy partnership will continueto deepen and grow more complicated as the leaders of theworld's largest economy and the world's fastest growing economyseek to figure out the road ahead.


Many U.S. lawmakers have charged that China has engineeredits economic rise in part by keeping its currency, the yuan,artificially low against the U.S. dollar -- an accusation thatBeijing rejects.

But the U.S. trade deficit with China is projected toapproach $250 billion this year, and U.S. manufacturers say theyuan needs to appreciate by as much as 25 percent to 40 percentto level the playing field.

Political debate over the currency issue has complicatedObama's efforts to smooth relations with Beijing. While theWhite House has urged China to take steps to allow the yuan tomove more freely, it has stopped short of officially labelingChina a currency manipulator, a designation that could lead topossible trade sanctions.

With U.S. voters already frustrated by the strugglingeconomy and stubbornly high unemployment rate near 10 percent,the China currency issue has heated up as Obama's fellowDemocrats brace for possibly large losses in the Nov. 2congressional elections.

The House Ways and Means Committee last week approved abill that would let the United States slap duties on goods fromcountries with undervalued currencies, and that bill lookslikely to pass a full House vote on Wednesday.

While it faces uncertain prospects in the Senate -- meaningit may never become law -- it nevertheless has provoked sharpnew words from Beijing.

Analysts say China could retaliate against any eventual lawby targeting U.S. exporters seeking to expand in the world'smost populous country, increasing the risk for U.S. companies

The U.S. dollar is also a hostage to the debate. China'shuge $2.45 trillion foreign exchange reserves are almosttwo-thirds in U.S. dollars, giving Beijing a powerful leverover the dollar's value should it decide to make significantchanges.


Officials in both Washington and Beijing have tried hard toisolate the currency issue and vowed it would not harmcooperation on other fronts.

There have been signs it is working. The United Stateslobbied successfully for China to back new U.N. sanctionsagainst Iran over its nuclear program, overcoming Beijing'susual reluctance to support punitive measures against one ofits key oil suppliers.

China has also cooperated to some degree on North Korea,although progress here has been slower.

Beijing -- the only major ally of Pyongyang's isolatedcommunist government -- has urged North Korea to abandon itsnuclear weapons and supported U.N. sanctions over North Korea'satomic violations.

Beijing has also hosted six-party talks with North andSouth Korea, the United States, Japan and Russia in a bid toresolve the impasse. Those talks stalled in 2009, however, andthe issue was further complicated in March when a South Koreannaval ship was sunk in what both Seoul and Washington say was aNorth Korean attack.

Despite heavy U.S. pressure, China stopped short of blamingNorth Korea for the incident, and it is unclear whether thetalks can resume soon, as Beijing hopes.

China and the United States are also divided over proposalsto fight global climate change -- another Obama priority --with Beijing saying the developed world should take the lead incutting carbon emissions.


As its economy boomed, China has also significantlyincreased its military expenditure -- raising fears of newfrictions with the United States, particularly over Taiwan andthe South China Sea.

Already boasting the largest army in the world, China hasalso invested in modernizing its navy and combat aircraft toproject its power, especially in the Pacific where U.S. forceshave long held sway.

Chinese officials point out that their defense spending isstill far lower than that of the United States, and that Chinais not seeking confrontation.

But there have been rifts. China froze military contactswith the United States after the Obama administration inJanuary unveiled a potential $6.4 billion arms package forTaiwan, which Beijing regards as a renegade province.

While U.S. officials hope this period will soon be over,Taiwan remains a potential flashpoint.

China has also protested joint U.S.-South Korean navaldrills after the sinking of the South Korean navy ship and hasaccused Washington of meddling in the South China Sea, whereBeijing is involved in territorial disputes with SoutheastAsian nations over an area rich in energy and key to shipping.

China this month has also argued with traditional U.S. allyJapan over disputed islands that both claim in a sign ofBeijing's increasing willingness to assert itself against otherregional powers.


Disputes over human rights once dominated U.S.-Chinarelations, but they appear to be receding as a public issue.

U.S. officials say they still press China to respect thebasic political and religious freedoms of all of its citizens,improve its legal system and end repression of unrest in borderareas Tibet and Xinjiang.

While Obama in February met Tibet's exiled spiritualleader, the Dalai Lama, earning sharp Chinese criticism, rightsgroups say his administration has been less vocal than itspredecessors in pushing for political change.

But the human rights issue flared on a new front this year:the Internet. China's Internet controls thrust it into adispute with search engine giant Google, and Secretary of StateHillary Clinton led U.S. criticism of Beijing's censorshippolicies, which she said were part of a "new informationcurtain descending across much of the world."

Analysts say the Internet row -- pitting a U.S. vision ofunfettered access against China's more controlled approach --is a sign of the deep political and cultural differences thatcontinue to divide Beijing and Washington, and which repeatedlylead the two giants to misunderstand each other.

(Reporting by Andrew Quinn; Editing by Cynthia Osterman)