China wants dialogue, US just wants
more By Zhou Jiangong
SHANGHAI - An impatient American
"Hurricane Hank" finally got something "tangible"
from China's "Iron Lady" during the just-ended
second meeting of the Sino-US Strategic Economic
Dialogue (SED) in Washington.
However,
Chinese officials are unhappy at mounting
political pressure on the economic dialogue from
the US side. Analysts say the bitter experience of
the Chinese delegation in Washington, DC, may lead
Chinese leaders to think twice about
the
relevance of the SED, which was founded last
September by Presidents George W Bush and Hu
Jintao.
US Treasury Secretary Henry "Hank"
Paulson has designed a seemingly long-term
"high-quality" discussion mechanism on complex
issues facing the two countries' economic
relations.
But in the opinion of some
Chinese officials and analysts it now looks more
like something to coax China into an endless
circle of yielding to one short-term demand after
another from Capitol Hill, Wall Street, US
government departments, and a variety of pressure
groups.
"Each time, China makes some
concessions and then the US side mulls more
political pressures for next time in hope of
getting more," said an analyst in Shanghai. "So
what's the purpose of the so-called 'strategic
dialogue'? And what will China expect from the
third round of the Strategic Economic Dialogue in
Beijing six months later?"
At the opening
of the SED on Tuesday, Vice Premier Wu Yi, China's
chief representative in the talks, warned that
attempts to politicize economic and trade issues
should be resisted.
"Politicizing economic
and trade issues is absolutely unacceptable, since
it is of no help but will make the situation more
complicated, harm bilateral economic and trade
relations, or even cause serious negative impact
on the progress of overall China-US ties," said
Wu, known as China's "Iron Lady".
"We
should not easily blame the other side for one's
own domestic problems, or even force one's own
views by imposing pressure on and confronting the
other," she said. "Against the ever deepened
economic globalization today, confrontation does
no good at all to problem-solving, and pressure
imposition can only make the situation more
complex."
In China's view,
"politicization" mainly refers to growing pressure
for revaluation of the yuan from the US Congress
and the Bush administration.
China has
repeatedly explained to the US side that quick
appreciation of its currency would be disastrous
for the Chinese economy, which in turn would have
a negative impact on the global economy. Many US
economists agree that yuan appreciation would not
help much in narrowing the trade gap between the
two countries, though most argue that the currency
is grossly undervalued, making Chinese imports
cheap and therefore unfairly competitive.
"US politicians certainly have a full
understanding of China's position," said a
researcher in world economy with the Chinese
Academy of Social Sciences. "It appears that they
continue to heighten the pressure on the issue
with a concern with their domestic politics, not
so much with the Sino-US trade. And by exercising
such pressure, they also want to gain something
else from China. This is what we call
'politicization'.
"A dialogue should be in
two ways," he said. "However, the Sino-US
Strategic Economic Dialogue turns out like a
one-way channel, with the one side turning a deaf
ear to the other.
"The Chinese government
has repeatedly said that China wants to buy more
goods from the US as an effort to narrow the trade
gap, but Washington refuses to ease restrictions
on exports of high-tech products to China."
Indeed, despite the fact that China agreed
to grant more market access to US businesses,
under the "wary eyes" of US politicians, the
second round of sweeping economic discussions
hosted in Washington by Paulson has not made any
major breakthrough that could defuse pending
punitive bills drafted on Capitol Hill.
US
lawmakers complain that yuan appreciation and the
protection of intellectual property were not
addressed. They have pledged to proceed with a
pack of bills that, once passed, would impose
sanctions on China's goods exported to the US and
could cause trade wars between the two economic
powers.
Even President Bush stood up and
appealed to China to take action on currency
appreciation: "One of the issues that I emphasized
to Madame Wu Yi, as well as the delegation, was
that we're watching very carefully as to whether
or not they will appreciate their currency. And
that's all in the context of making it clear to
China that we value our relationship, but the
[US]$233 billion trade deficit must be addressed."
This was the first time Bush had publicly
addressed the currency issue.
Ahead of the
Sino-US dialogue, the People's Bank of China
(PBoC), China's central bank, last week expanded
the floating band against the greenback to 0.5%
from the previous 0.3%. The action is largely
symbolic and it sent a signal to the US Congress
that China will float its currency but it is up to
Beijing, not Congress, to decide on the timetable.
PBoC governor Zhou Xiaochuan said after
the talks in Washington that China plans to
increase flexibility in the yuan's exchange rate,
but "we will continue to follow the three
principles of exchange-rate reform and increase
the flexibility of the yuan''.
While China
stands firm on the yuan issue, it has made
concessions in other areas.
A delegation
of 170 Beijing mandarins, including 15
ministerial-level and 10 vice-ministerial-level
government officials led by Wu Yi, may have failed
to please Congress, but the Chinese chose to make
a concession to Paulson, the former chief
executive officer of Goldman Sachs, by increasing
the quota for foreign investment in Chinese stocks
from $10 billion to $30 billion. Thus more foreign
investors, mainly from the US, will be able to tap
into China's buoyant capital market under the QFII
(qualified foreign institutional investor)
program.
China will also lift restrictions
on foreign firms entering its securities industry,
which is extremely profitable because of the
explosive trading volume. In addition, China will
announce before the third round of the SED in
Beijing six months from now that it will allow
foreign securities firms to expand their
operations in China to include brokerage,
proprietary trading and fund management.
Paulson can also boast a deal package from
the talks that includes:
Doubling of daily passenger flights from the
US to China by 2012, starting with the addition of
a new daily flight this year.
A declaration of intent to launch negotiations
to facilitate Chinese group leisure travel to the
United States.
China will immediately allow foreign-invested
banks to offer their own brand of yuan-denominated
credit and debit cards. This will allow US banks
to offer a full range of yuan services to compete
with Chinese banks that currently offer these
services.
Over the next five years, the US and China
will develop up to 15 large-scale projects for
capturing and using methane from coal mines in
China.
While comforting Wall Street, China
also tried to appease Capitol Hill. A delegation
of Chinese companies has signed more than $20
billion of trade deals this month. Six Chinese
manufacturing groups representing 208 companies
visited 25 US cities.
While Paulson called
the agreements "significant", the issue of the
yuan exchange rate against the US dollar, the top
concern of Congress, was not even mentioned.
"Mr Paulson does not seem to believe that
the exchange rate is the central issue, although
he may still be pushed to do so by Congress. He
focuses on the critical importance for China and
US-China relations of capital market development
in China," a source close to Paulson's private
adviser told China Business News, a leading
business newspaper based in Shanghai.
To
Paulson, the undervalued yuan, blamed by Congress
for causing the huge trade deficit and stealing
jobs from Americans, needs to be dealt with in an
incremental way. He would like to persuade -
rather than pressure - China to revalue or
significantly float its currency. He thinks a more
flexible yuan is in China's best interests and it
is up to Beijing to take action.
Zhou Jiangong is a
Shanghai-based analyst on China's economic,
political and foreign affairs.
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