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2 Sino-American friction
builds By Benjamin A Shobert
SHANGHAI - In an already eventful year for
US-China relations, over the past month the recent
generation of new US congressional and
administration reports coupled with Treasury
Secretary Henry Paulson's recent trip to Beijing
have closed out 2006 with an unusual flurry of
activity.
This past month represents a
portion of the year probably second in
significance only to Chinese President Hu Jintao's
April trip to the US. It seems impossible to view
the recent US-China
Economic and Security
Commission report and the just-released US Trade
Representative report (USTR 2006) to Congress on
China's World Trade Organization (WTO) compliance
without sensing that the stress to the foundation
of US-China relations is now beginning to show
additional strain.
Inevitably, US
interests as an established international power
and the rapidly modernizing power of China are
bound to generate friction; but if the USTR report
released on December 11 is any indication, 2006
may mark a pivotal year when US politicians began
to view China's growing influence as a perfectly
legitimate issue by which to confuse an
increasingly frustrated electorate eager to find a
body of issues that can be blamed for their own
sense of economic malaise.
Polls, which
already showed that 57% of Americans believe the
US is "not tough enough" during negotiations with
China, are worsening, which leaves little doubt
that politicians are not going to be left behind
if a new whipping boy for collective US economic
ills is to be found.
With the impending
transfer of congressional power to the Democratic
Party in Washington, the fear that populism may
create a protectionist environment not conducive
to trade with China is beginning to be discussed
seriously, along with troubling questions about
the possible impact a chilling in economic
openness might have on the health of both the US
and China. If the USTR report is any sign of what
is to come, 2007 may be a year marked by
increasing fixation on purported "fixes" to the
US-China trade imbalance, fixes that have more to
do with what fits into congressional politics than
what actually balances the respective needs of
stakeholders between the US and Chinese economies.
The USTR report and Paulson's comments
broadly parallel each other, and reflect common
misunderstandings that will continue to plague
US-China relations until both sides view their
relationship as holding the potential to be
mutually beneficial, and not merely politically
expedient. Between Hu's April trip to the US and
last week's USTR report - not coincidentally also
the week of Paulson's trip to Beijing - the most
commonly discussed topic has been the valuation of
the Chinese currency.
Missing almost
entirely from the conversations revolving around
this topic is an acknowledgement that Beijing has
authorized the city of Tianjin to embrace a
"floating foreign-exchange mechanism", and that a
number of voices from within Beijing are
encouraging a fully convertible yuan by 2008. When
reading the USTR report and listening to Paulson's
comments, it becomes obvious that what is in play
is not entirely actual change on the part of the
Chinese government but political considerations on
the part of the US.
The overall tenor of
the USTR report is that China, by agreeing to
enter the WTO, must act as "any other mature WTO
trading partner" (p 5), which would require China
to make additional changes to its economy and
trading policies. While in the introductory
portion of the report China's efforts are
initially acknowledged, the reader finishes with
the sense that, on balance, the point of the
report is not to elaborate equally on both the
areas of compliance and non-compliance with
China's WTO membership. The latter receives
primary emphasis, the former only when necessary
for the purposes of not appearing overly strident.
The USTR report emphasizes nine issues,
including China's questionable enforcement of
intellectual-property rights, uneven access to
China's distribution-services sector by foreign
entities, import regulations in violation of WTO
standards, export regulations also inconsistent
with WTO expectations, China's internal economic
policies (ranging from taxation to subsidies to
price controls), investment, agriculture tariffs
and subsidies, the ability of China's burgeoning
services sector to be accessed by non-Chinese
companies, and the overarching lack of
"transparency and uniformity" of China's legal
systems (p 9).
For Beijing to continue its
embrace of free-market reforms, it needs to
believe that the advice it is being provided with
is designed to facilitate its growth, and not
purely to protect more developed economies that
fear China's growing influence. The USTR report
very quickly moves beyond the typical perfunctory
acknowledgements of China's efforts to comply with
its WTO obligations and suggests that additional
wariness should be the order of the day when
evaluating China.
Early in the report, one
trade-association official is quoted as saying:
"Recent public policy debates in China have
indicated a dampening of enthusiasm in some
quarters for foreign participation in the economy.
Some in China also appear to want to expand the
government's role in directing the economy and in
