Audio Transcript:

Secretary Hillary Clinton wrapped up two days of talks in Beijing today. Topping the agenda was the trouble between North and South Korea over the sinking of a South Korean navy ship two months ago. Evidence suggests that North Korea torpedoed the vessel. The World's Mary Kay Magistad tells anchor Marco Werman that the US is pressing China to use its influence with North Korea to keep the peace on the Korean peninsula.

MARCO WERMAN: I'm Marco Werman. This is The World. United States and China ended two days of intensive talks in Beijing today. The sinking of a South Korean Navy ship two months ago turned out to be the issue. Evidence suggests that North Korea torpedoed the vessel, though the North denies any involvement. Today in Beijing, Secretary of State Hillary Clinton said the U.S. and China will work together to find an appropriate and effective response. The World's Mary Kay Magistad has been following Secretary Clinton's diplomatic mission in the Chinese capital. So Mary Kay, Hillary Clinton is hoping for an effective response. How is that looking so far?

MARY KAY MAGISTAD: Right and just to give you an updated context for this, this has been a very heated day in Korean relations. North Korea says it's going to sever all its ties and communications with Seoul. Seoul is deciding whether it's going to start calling North Korea its arch-enemy again in its official defense documents and it has been broadcasting propaganda into North Korea. The North Koreans, meanwhile, are saying that they'll fire at propaganda facilities on the border. So in the midst of all this, Secretary Clinton said that basically in her talks with the Chinese there had been some agreement that they need to stay in close contact on this issue.

SECRETARY OF STATE HILLARY CLINTON: We expect to be working together with China in responding to North Korea's provocative action and promoting stability in the region.

WERMAN: Mary Kay, you would hope that prudent diplomats are already thinking about what happens to North Korea when that regime is gone. Are you hearing of any grand bargains being discussed about who would occupy the territory and who would pay for reconstruction?

MAGISTAD: These are not the sorts of things that China would talk about publicly, certainly not with the United States, with visiting U.S. delegations. Analysts who have been following this closely for many years do believe that China has its contingency plans possibly of moving in troops if North Korea starts to fall apart. But exactly what they would do is very much an opaque matter at this point. It is known that China is very interested in a North Korean port. If it's very close to its northeast, it would help a lot with cutting down shipping times. And China kind of likes the idea of having a buffer state between it and a U.S. ally, South Korea.

WERMAN: Now Korea has kind of usurped the headlines through these Beijing talks, but the economic talks, the sort of what was originally slated is still very important. What's going on in that arena?

MAGISTAD: Treasury Secretary Tim Geitner said that one thing that he hadn't pushed for as hard as news reports might have indicated he would, is some change in China's foreign exchange rate with the U.S. dollar. The remimbi is considered to be well below its market rate. But Secretary Geitner said this is for China to decide based on its own economic needs when it makes sense for it to let its currency float a bit more. He said what's important to China and to the U. S. is that the economic mix within China changed, that China's economy remains strong, but that there's more domestic consumption. He said there are signs that this is starting to shift and that he welcomes that.

WERMAN: So that's the Chinese currency and interestingly apparently Tim Geitner also roped in the issue of the euro in these Beijing talks as well.

MAGISTAD: Right and not just of the euro but in fact of European economic reform and he said that there had been some meeting of the minds on that issue.

TIM GEITNER: We both have, China and the United States, have a strong interest in seeing Europe put in place this very strong program of economic reforms and financial support. And of course it's important to understand that Europe has the capacity to manage these challenges, and we're confident they will.

WERMAN: U.S. Treasury Secretary there, Tim Geitner there in Beijing. Mary Kay why is the euro so important to China?

MAGISTAD: Well two things, first of all Europe is a huge trade market for China. And the other thing is that China, as it starts to think about how to manage its currency, had been looking to the euro as an alternative to the dollar. Not to make a total shift over to the euro, but at least to have a different basket of currencies, a different mix of currencies in its basket. And if the euro is not reliable then China has to depend much more on the dollar, which is a position it's not entirely comfortable with.