China-US: Little to show from
dialogue By Jing-dong Yuan
US Treasury Secretary Henry Paulson's
visit to China this week takes place at a critical
juncture in bilateral relations. Since taking
office last July, Paulson has been working
diligently to persuade his Chinese counterpart to
undertake greater economic reforms, while
resisting congressional pressure to threaten
punitive actions against on issues ranging from
the staggering trade deficits, yuan appreciation,
market access and protection of intellectual
property rights.
The most important
development was the initiation in December of the
Sino-US "Strategic Economic Dialogue", with its
meeting held in Beijing and attended by five US
cabinet-level officials, Federal
Reserve chairman Ben
Bernanke, and Paulson himself. The Chinese hailed
the dialogue as a further sign of the maturity of
bilateral relations as both sides now seek to
resolve their differences through consultation and
dialogue rather than pressure, coercion, and
threats of economic retaliation.
Paulson's
current visit, the third since he became the US
administration's point man for China affairs,
could not have taken place at a more critical
juncture. The second meeting of the Strategic
Economic Dialogue is scheduled for May and, as far
as the US side is concerned, there has been little
sign of progress. If anything, economic tension
seems to be growing, especially with the record
bilateral US trade deficit of US$232 billion in
2006, up from $201 billion in 2005.
The
Chinese yuan has undergone modest appreciation
since last summer, but remains well below US
expectations. One of the arguments has always been
that should the yuan be allowed to appreciate,
that could help significantly reduce the bilateral
trade imbalance. Other US concerns, especially the
slow pace or lack of market reforms on China's
part, fan more congressional criticism and raise
the specter that Democrats could introduce
legislation threatening retaliation. This may be
Paulson's message to his Chinese counterparts.
However, to the extent Paulson's trip
could accomplish anything, his hands are tied both
because of the growing economic interdependence
between the two countries and the difficulties
Chinese leaders face in pushing market reforms
that would address America's economic woes. The
stock-market volatility in the past few weeks
suggests how closely connected the Chinese economy
is with that of the US and, for that matter, the
global economy as a whole.
The
administration of President Hu Jintao and Premier
Wen Jiabao has a goal of building a "harmonious
society", but this depends on continuing economic
growth and more equal distribution of wealth. Any
slowdown of the economy, which could result from a
significantly appreciated yuan that would dampen
exports, would lead to unemployment and social
unrest, something the leadership is eager to
avoid.
China's reluctance to open up its
service sectors to US companies reflects a concern
of most developing countries to protect domestic
"infant" industries. But Beijing has taken some
preliminary steps in allowing limited foreign
entry. What China does not want to do is to rush
to radical market reforms that could be recipes
for disaster. Instead of pushing China to adopt
drastic and quick measures, the US could help
China to establish the mechanisms to monitor and
regulate its capital markets better, which in turn
could facilitate currency appreciation that more
accurately reflects market values.
Potential Sino-US friction is not confined
to the economic issues. Paulson's visit takes
place on the heels of Deputy Secretary of State
John Negroponte's trip last week, where he faced
criticism from his Chinese hosts after the US
announced the latest arms sales of 450 air and
ground missiles to Taiwan. Beijing strongly
opposes the sales, especially at a time when the
political situation in Taiwan is extremely
volatile and as President Chen Shui-bian provoked
the mainland by making another push for
independence.
Likewise, Washington takes
issue with China's recent test of an
anti-satellite weapon and its growing military
spending. Vice President Dick Cheney raised
questions about China's peaceful intent by
pointing to the anti-satellite test. In recent
congressional testimony, Secretary of Defense
Robert Gates and top US military leaders expressed
concerns over China's growing military power and
lack of transparency.
But Sino-US
relations are also characterized by cooperation on
a number of fronts, including the "global war on
terrorism" and the North Korea nuclear issue.
Indeed, the recent breakthrough in the six-party
talks on Pyongyang's nukes in no small measure is
the result of close consultation and coordination
between Washington and Beijing.
This year
marks the 35th anniversary of the late US
president Richard Nixon's visit to China, the week
that changed the world. There was no trade
friction to speak of when Nixon extended his hand
to premier Zhou Enlai on that cold February day
because there was virtually no trade. In fact, the
US had barely lifted the Trading with the Enemy
Act against China. Bilateral trade was only $2
billion.
Today it is close to $300
billion, a 150-fold increase over the past three
decades.
And it is a far more complex but
increasingly mature bilateral relationship.
Differences will always exist and tensions can
flare up. But the stakes and common interests
between the two countries are such that a major
trade dispute will cost both sides dearly.
Paulson visited China 70 times when he was
in the private sector, in order to build trust.
Building a relationship of mutual trust between
the two great powers requires no less effort.
Paulson comes with a message for China to
open up its market, speed up market reforms, and
improve environmental protection. It is to be
hoped that he goes away with assurance from the
Chinese leadership that Beijing is equally
resolved that these issues must be addressed, but
the best way to do it remains cooperation.
Dr Jing-dong Yuan is director of
the education program, Center for
Non-proliferation Studies, and associate professor
of international policy studies at the Monterey
Institute of International Studies.
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