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* Obama: China stronger if improves record on rights

* Blind dissident said to want to stay in China

* Clinton to raise human rights in Beijing

* China, US governments keep silence on Chen issue

By Arshad Mohammed and Chris Buckley

WASHINGTON/BEIJING, May 1 (Reuters) – U.S. Secretary of

State Hillary Clinton left on Monday on a high-stakes trip to

Beijing, where a blind dissident is reportedly holed up in the

U.S. embassy in a drama threatening to overshadow top-level

meetings between the two governments.

Dissident Chen Guangcheng, according to one of his helpers,

will demand to stay in China and press on with his campaign for

reform, adding to tension between Beijing and Washington that

poses risks for both governments as well as to relations between

the world’s two biggest economies.

Both governments have scrupulously avoided official comment

on the Chen case and neither has confirmed that he is under U.S.

protection in Beijing.

Chen’s audacious escape from house arrest, under the watch

of the world’s largest domestic security apparatus, was a

“miracle” of planning and endurance, said Guo Yushan, a

Beijing-based researcher and rights advocate who has campaigned

for Chen and helped bring him to the Chinese capital after his

escape.

But he said the 40-year-old, self-taught lawyer wants to

stay in China and campaign for reform.

“He was adamant that he would not apply for political asylum

with any country. He certainly wants to stay in China, and

demand redress for the years of illegal persecution in Shandong

and continue his efforts for Chinese society,” said Guo on

Monday, speaking in his first long interview since he was

released from days of police questioning.

Chen, who campaigned against forced abortions as part of

family planning, was confined to his village home in the eastern

province of Shandong since September 2010, after release from

jail on charges he rejected as spurious.

U.S. President Barack Obama nudged China to improve its

human rights record, saying the two countries’ relationship

“will be that much stronger and China will be that much more

prosperous and strong as you see improvements on human rights

issues in that country”.

POLITICAL AMMUNITION

But at a news conference, he walked a fine line between not

saying anything that would make it harder to resolve Chen’s case

while conveying U.S. concern for human rights and appreciation

for wider cooperation with China.

It is a politically fragile period for both countries.

Obama, in this presidential election year, wants to avoid

giving any political ammunition to his Republican foes who

already accuse him of being too soft on China and have demanded

he ensure Chen and his family are protected from persecution.

In Beijing, the ruling Communist Party is gearing up for

leadership changes later in the year but the carefully

choreographed planning has already been jolted out of step by

the downfall of top official Bo Xilai, in a case linked to the

apparent murder of a British businessmen.

Before leaving, Clinton promised to press China’s leaders on

human rights, an issue that has dropped down the agenda between

the two countries in the more than two decades since the 1989

Tiananmen Square crackdown.

Clinton ducked a question about Chen, but hinted that she

would not be shy about the matter in Beijing.

“A constructive relationship includes talking very frankly

about those areas where we do not agree, including human

rights,” she told a news conference.

The Chen case has already distracted attention from this

week’s two-day talks, which U.S. Treasury Secretary Timothy

Geithner will also attend amid some progress in long-standing

disputes over currency, trade and market access.

The talks also give Washington a chance to win more Chinese

co-operation on international issues including pressuring Iran

and North Korea over their nuclear programmes, halting Syria’s

continued crackdown on unarmed protesters and reducing tensions

over competing territorial claims in the South China Sea.

Analysts said Chen appears to have two options: going into

exile or getting the Chinese authorities to allow him to live in

freedom within China, a challenge at best.

Yang Jianli, who runs the U.S.-based pro-democracy group

Initiatives for China, said he believed that both the United

States and China would prefer that Chen go into exile but that

he did not think the dissident would.

“He is not the (kind of) person who will give in,” Yang

said. “He is so determined to stay in China.”

Bob Fu, whose religious and political rights advocacy group

ChinaAid has been a source of information about Chen, suggested

the most plausible solution would be for him to leave China for

the United States with his family, ostensibly for medical care.

Fu, who said he has spoken with senior U.S. diplomats in

China about Chen’s case, suggested the dissident ultimately may

have little choice.

“At the end of the day, that is the only option that is

left, if he wants safety and freedom for himself and his

family.”