On the Chinese side, the key concern remains the security of its assets in the US. China has more than $2.1 trillion in US dollar denominated assets, including more than $800 billion in US Treasury securities (as of May 2009).

"As a major reserve currency-issuing country in the world, the US should properly balance and properly handle the impact of the dollar supply on the domestic economy and the world economy as a whole," said Wang Qishan, cautioning against letting the dollar slide too far.

Interestingly, the US promised to make it easier for US companies to export high-technology goods to China. On the strategic side, the two parties have discussed an array of complex bilateral and multilateral issues, including the Democratic People's Republic of Korea, Iran, Pakistan and Afghanistan.

"We have laid the foundation for a positive, cooperative and comprehensive relationship for the 21st century," Clinton has said.

As part of the "strategic track" of discussions, the two countries also signed a memorandum of understanding on bilateral cooperation in energy, climate change and the environment.

For half a century, post-War victors have dominated international financial institutions. Such arrangements no longer reflect the balance of power in the 21st century.

Henry Kissinger, former US secretary of state, has praised Obama's opening foreign policy moves. Under Obama, the White House has returned to traditional US multilateralism of treaties, alliances and grand strategy.

But it is the economy that made the Obama presidency. Though an overwhelming majority of Americans stand behind the White House's foreign policy, the story is very different with domestic policy.

Obama's initiatives – health reform, alternative energy, moderate regulatory reforms, and the languishing effort to buy off the "toxic assets" of the banking system – have sparked uncertainty and dissension.

The success of the US-China dialogue depends on outcome of US domestic policy, too, because the latter is vital for sustained economic recovery.

Since fall last year, the US and China both have enacted massive stimulus programs. Now they must decide how and when to phase them out without damage to their respective economies.

Both see inflation as a major threat. China is especially worried by potential US efforts to "inflate" its way out of the fiscal deficit.

In the coming months, the progress of the dialogue will depend on the anticipated recovery of the US economy, which seems to be bottoming out. While the real GDP is no longer plunging, the decline of the last quarter is still estimated at 1 to 2 percent.

US consumer confidence is now declining. In the third quarter, lingering growth is not expected to generate enough jobs to reverse the rate of unemployment.

There is also concern over whether the anticipated recovery will be sustainable after the effect of the stimulus package wears off. Still, there is a new tone of cooperation in the US-Chinese dialogue.

It is the economic challenges ahead that will test the SAED. And it is the shared US-Chinese trust that can support efforts to overcome those challenges.

The author is the research director of International Business at the India, China and America Institute.

(China Daily July 30, 2009)