By Chris Buckley and Michael Martina
BEIJING (Reuters) - Blind Chinese activist Chen Guangcheng is under U.S. protection in Beijing after an audacious escape from 19 months under house arrest, a U.S.-based group said on Saturday, in a drama that threatens to ignite new tensions between the two governments.
The United States has not confirmed publicly reports that Chen, who slipped away from under the noses of guards and eyes and ears of surveillance equipment around his village home in Shandong province, fled into the U.S. embassy.
China has also declined direct public comment on Chen's reported escape, which threatens to overshadow a two-day meeting with top Obama administration officials, including Secretary of State Hillary Clinton, in Beijing from Thursday.
But Texas-based ChinaAid said it "learned from a source close to the Chen Guangcheng situation that Chen is under U.S. protection and high level talks are currently under way between U.S. and Chinese officials regarding Chen's status."
"Because of Chen's wide popularity, the Obama Administration must stand firmly with him or risk losing credibility as a defender of freedom and the rule of law," Bob Fu, president of the religious and political rights advocacy group that has long campaigned for Chen's freedom, said in an email.
The standoff carries political risk for President Barack Obama, whose presumptive Republican challenger in November's election, Mitt Romney, has painted Obama as weak on China.
"The Obama Administration will be inviting attack from the Romney campaign ... if the right course is not decided immediately," said Michael Pillsbury, a former senior official in the previous three Republican administrations.
The reports of Chen's escape come nearly three months after a Chinese official, Wang Lijun, fled into a U.S. consulate for over 24 hours on February 6, unleashing a scandal that rattled the ruling Communist Party a few months before they are to head into a once-in-a-decade leadership handover.
Wang's brief flight to the U.S. consulate led to the downfall of top official Bo Xilai who had been openly campaigning for a place in the inner circle of power in Beijing. Wang was taken into custody by central government authorities when he left the consulate.
Pu Zhiqiang, a Beijing lawyer and rights advocate, said reliable contacts also told him Chen took refuge in U.S. embassy grounds. The incident will be another damaging blot on China's security services, following Wang's flight, said Pu.
"Everyone knew about the suffering of Chen Guangcheng and his family but nobody dared raised his head over this and ignored it," he told Reuters, referring to Chinese officials.
"Chen Guangcheng has been the most typical victim of this lawless, boundless exercise of power," said Pu. "But the day has finally come when he has escaped from it."
Chen, a self-schooled legal advocate who campaigned against abortions forced under China's "one child" policy, had been held under extra-legal confinement in his village home in Linyi in eastern Shandong province since September 2010 when he was released from jail.
His confinement with his family under relentless surveillance fanned protests by Chinese sympathizers and criticism from foreign governments and groups.
Chen's escape and the furor it has unleashed could add to the headaches of China's ruling Communist Party, which is striving to ensure stability and authority before a leadership transition later this year.
It also threatens to overshadow a visit by Clinton and Treasury Secretary Timothy Geithner, who are due in Beijing next week for the annual high-level talks between the two countries.
Asked whether any issue could force the meeting to be canceled or postponed, Chinese Vice Foreign Minister Cui Tiankai said, "I don't know why you'd ask the question."
Cui told a news conference he had "no information" on Chen.
A U.S. State Department source said on Saturday there was no change to plans for Clinton and Geithner to attend the May 3-4 Strategic & Economic Dialogue consultations.
"We're going," said the source, who spoke on condition of anonymity.
ChinaAid's Fu told Reuters that Chen's flight was not timed to take advantage of the high-level diplomacy.
"There's really no calculation. He was totally cut off from the outside world and has been preparing for this moment for months," he said by telephone from Texas.
"Chen's first wish is that he can be guaranteed freedom just like normal Chinese citizens in China. To be exiled is not his first choice," added Fu.
U.S. economic analysts who follow China voiced conflicting views on the potential of Chen's standoff to disrupt bilateral ties - and by extension the world economy.
Bonnie Baha, portfolio manager at the $32 billion DoubleLine Capital, said "the timing couldn't be worse" with the Clinton trip and with Beijing "already embarrassed over the Bo Xilai scandal."
"Given the state of the world's economy and the level of economic interdependence which currently exists this certainly has the potential to roil world markets," she said.
But David Hale, an economist based in Chicago and veteran China watcher, said he saw "nothing new in this and (it) will continue so long as China remains an authoritarian country."
"I do not think this will have a major impact on the markets. The Obama administration will try to manage this in a low-key way," he said.
Hu Jia, a Beijing dissident who met Chen several days ago in Beijing, recounted that Chen said he would not seek asylum from within the U.S. embassy.
"If they catch him, there will be unprecedented retaliation against him. So in the end we decided there was only one place that could guarantee his safety," Hu said, referring to the embassy.
"Before making a decision to go there, he said he wanted to stay and fight, and not request asylum," added Hu.
Later Saturday, Hu was escorted away by a group of police, according to his wife Zeng Jinyan. More police were likely to come to take her away as well, she said.
"The situation is very complicated. The police are outside right now," Zeng said in a strained voice before ending the conversation.
Fu said Chen's wife, mother and daughter are "still under tight house arrest," while his older brother, Chen Guangfu, and nephew have been arrested and other relatives and neighbors were taken away for questioning.
Washington and other Western governments have criticized Beijing's jailing and confinement of dissidents, protesters and other citizens who challenge Communist Party power. China says such criticism is unwelcome meddling in domestic affairs.
Two prominent Chen supporters, friend He Peirong and Beijing researcher Guo Yushan, were out of contact on Saturday. Fu said He was detained on Friday morning in the city of Nanjing but was unaware of Guo's fate.
"I was actually talking to her and the last words she said were 'the PSB has arrived,'" Fu said, referring to the Public Security Bureau.
There was no sign of any greater than normal security around the U.S. embassy, a fort-like compound of concrete and steel in northeast Beijing.
If Chen is sheltering inside, that could thrust Washington into the midst volatile leadership politics in China, recalling the case of dissident astrophysicist Fang Lizhi. He hid inside the U.S. ambassador's resident with his wife after the 1989 Tiananmen crackdown, to Beijing's outrage.
Fang settled in the United States and died recently.
Officials in Shandong said on Saturday they had no comment on Chen's escape. State media has made no mention of the saga.
"It is the Shandong government that has bungled this by turning a small matter into an international affair," said Li Datong, a former editor at the China Youth Daily, a party paper, who was pushed aside for denouncing censorship. "It is certainly a loss of face for the central government."
Economics professor Michele Boldrin of Washington University in St. Louis said the security lapse that allowed Chen to escape likely would make China loathe to complain too loudly.
"I expect the Chinese government to follow the usual procedure: complain loudly, use strong words for the internal propaganda and then eventually get down to business when it is time to do business," said Boldrin, a research fellow at the Federal Reserve of St. Louis.
(Additional reporting by Paul Eckert in Washington, Tiziana Barghini, Jennifer Ablan and Daniel Bases in U.S. bureaux; Writing by Ben Blanchard; Editing by Ed Lane and Jackie Frank)