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More tough talks in
Beijing
By Francesco Sisci
BEIJING - This is a critical week for China,
full of opportunities and challenges, as it discusses
thorny issues with its two most important political and
economic partners, Japan and the United States.
Japanese Defense Agency chief Shigeru Ishiba on
Monday began a four-day visit to hold talks with Chinese
officials. His agenda is a mixed blessing for the
Chinese - North Korea, on which Six-Way Talks just wound
up on Friday in Beijing, and of missile defense.
On the first subject, China and Japan are
expected to share many views: both are against a
nuclear-armed North Korea, and both are also adamant
against any sudden military solution, which could solve
the nuclear side of the problem but would greatly
increase the danger of a flight of refugees and could
well demand enormous resources from all Pyongyang's
neighbors for the reconstruction of North Korea. Both
China and Japan, facing different but parallel economic
difficulties, do not wish to spend extra cash on North
Korea and would be happy if Pyongyang tried to get out
of its difficulties by itself, with minimal aid from
abroad.
A different problem is the theater
missile defense (TMD) system pushed by the United
States. The Chinese stress that TMD strategically is
something that could make a country thus protected feel
sufficiently invulnerable to launch a first-strike
nuclear attack. The Japanese conversely underscore the
necessity to defend themselves from volatile and
unpredictable North Korea.
However, in recent
months the two positions have become closer. The Chinese
recognize that the Japanese need to defend themselves,
even independently from the US umbrella, and are less
critical of TMD, as they believe their hundreds of
short-range missiles could always poke a hole in the TMD
shield. The Japanese seem happy with the new Chinese
understanding and have been coordinating more with their
Chinese counterparts. The North Korean issue is bringing
the two countries together and building trust between
the neighbors and burying their differences.
This week's meeting, then, the first in five
years at this level, could bring a new atmosphere into
the region.
But the timing is also important. On
Tuesday, US Secretary of the Treasury John Snow arrived
in Beijing for two days of talks with his Chinese
counterparts. The main subject is to be the exchange
rate of the yuan and its peg to the US dollar. Snow
reportedly likes to insist that the market, and the
market alone, should determine exchange rates - that
governments, economists and journalists, among others,
have no business getting involved. In Beijing this
subject will be very delicate on both sides.
The
Chinese insist that the peg not only guarantees
stability to their economy, but also contributes to the
stability of the global financial order. The evidence
for that is the Asian financial crisis of 1997-98. The
markets at the time were pushing for devaluation of the
yuan, but the Chinese resisted and thus stemmed the
flood of the crisis, which could have engulfed the whole
world, and not only Asia.
The Americans will
stress that decades of high growth, coupled in the past
seven to eight years with very low inflation, a massive
yearly trade surplus and ballooning foreign reserves are
all objective indications that the yuan should be
somewhat revalued. However, if that were to occur, the
US could end up with the short end of the stick: the
revaluation of the yuan could push up US inflation, as
the US has no small dependence on cheap Chinese imports.
Furthermore, if China were to export less to the US it
would be able buy fewer US bonds, thus further weakening
the US economy. In other words, between the US and China
there is a double bond, and any bilateral adjustment
must be carefully calibrated.
In any case, an
adjustment might be really needed. In the US and Europe
there is a growing concern that the yuan is undervalued,
destroying thousands of jobs in the West. China must
therefore find a solution agreeable to all.
If
China manages both to have an agreement with Japan on
defense and on the yuan with the US, the rest of the
year will go smoothly. Otherwise, these issues could
become subjects of hot discussion at the next party
plenum, due next month, and flare up in the
international press.
The Japanese side seems the
easiest, but is ridden with traps, as there is a
deep-seated mistrust between the two countries. The
meeting with the US seems more difficult, but could be
easier as the US is keen on keeping inflation low, and
thus possibly even the yuan low, while trying to boost
growth in the coming months.
(Copyright 2003
Asia Times Online Co, Ltd. All rights reserved. Please
contact content@atimes.com for
information on our sales and syndication policies.)
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