World-China Forum

Climate Progress in China

It is time to retire the tired cliché that the United States cannot move forward on meaningful domestic legislation to protect our planet from the ravages of climate change unless China commits to do the same. Though they are not there yet, China today is beginning the transition to a clean-energy economy through a wide range of actions. These efforts should be encouraged and expanded upon.

The Center for American Progress argues that Congress must assess China’s efforts to pull its own weight on climate change—steps that will result in significant reductions in carbon emissions from the business-as-usual scenarios even as China’s economy continues to grow.

Looking forward to the U.N. climate change negotiations in Copenhagen at the end of this year, Congress must acknowledge that these efforts by China and complementary efforts by other countries, including the United States, will improve our chances of forging an agreement to solve the problem of global warming. (Julian Wong and Andrew Light, Center for American Progress)

North Korea and the Chinese Giant

North Korea’s nuclear ambitions clearly have high stakes for China, and the question now is not whether China will actively seek to rein in the North’s behavior, but rather, how it will do so.

China has demonstrated over the past few weeks its growing impatience with the North’s behavior and its readiness to take punitive measures against its communist ally. Reports from the United Nations indicate that China is receptive to U.S. calls for sanctions to punish the DPRK for its recent behavior. Beijing played a crucial role in bringing Pyongyang back to the negotiating table following the October 2006 nuclear test, and the United States is again looking to China to be a constructive partner in resolving the crisis.

But a healthy dose of caution must accompany this optimistic development. China’s chief endgame is stability, not the denuclearization of North Korea, and it is unlikely that China would take any actions that it believes would cause the regime to collapse or instigate it to escalate the situation further.

China will continue to be cautious and restrained in its actions, just as it has called for other nations to remain “cool-headed.” What we will likely see as the crisis unfolds is a China that is much more vocal in its opposition to North Korea’s nuclear and military programs and more disposed to participating in multilateral condemnations and economic sanctions against North Korea, but strongly opposed to military responses, such as bolstering of bilateral U.S.-Japan and South Korea relations. (Winny Chen, Center for American Progress)

Cooperating With China in Latin America

Alicia Barcena, the U. N. Economic Commission for Latin America and the Caribbean’s executive secretary, made note of China’s growing investments in Latin America and the Caribbean during a recent press conference in Santiago, Chile, suggesting “[t]here are promising hopes for Chinese investment in the near future.”

Indeed, China increasingly looks to the region as a primary source for raw materials to match its blistering pace of development. These growing ties between China and Latin America and the Caribbean raise a question for U.S. policymakers: How should the United States view China’s emerging presence in a region that was once considered—under the Monroe Doctrine—the United States’ sphere of influence?

The United States and China, as important investors in the region, could find ways to work together on helping Latin American and Caribbean governments tackle crime and insecurity. And the United States should seek China’s cooperation in the various institutions that comprise the Inter-American system—a system that makes a fundamental commitment to democracy and human rights. The United States could use these multilateral forums to ask China to uphold its policy paper commitments to promote a more equitable economic world order, as well as democracy in the international system.

China’s presence in Latin America and the Caribbean will continue to grow. So the sooner the Obama administration can find ways to cooperate with China in the region the better. Doing so would strengthen the United States’ standing in the region and would foster trust with one of its most important global economic partners―who happens to be evolving into a potential commercial rival to it south. In sum, focusing on an agenda that fosters mutual respect and engages Latin America and the Caribbean and its associates in finding solutions to regional and global challenges will not only deliver on the United States’ promise of seeking a “new era of partnership,” but perhaps succeed in turning a rival into an ally. (Stephanie Miller, Center for American Progress)

Why Geithner Went to China

Treasury Secretary Timothy Geithner arrived in China this week to continue the ongoing dialogue between the world's two largest economies, and definitely avoid talk about political reform. But democracy of a sort was on his agenda: The Chinese public doesn't trust its government's investments in American dollars, and the popular pressure is forcing Chinese officials to criticize America's economic policies. That gave Geithner a two-fold task this week: placating Chinese officials nervous that the Obama administration's spending plans could undermine the value of the dollar, and, more important, urging China to adopt new policies to dramatically change the focus of its economy.

Geithner was at pains to assure his Chinese counterparts that the Obama administration has the fiscal situation well in hand, even going so far as to promise a budget deficit of 3 percent of gross domestic product after the recession. It's not a new or unwelcome projection, though it is rare to hear such a specific target cited on foreign shores.

But outside of the political sideshow, the much-hyped Chinese ownership of U.S. debt and the controversy over exchange rates (which has led some Americans to accuse the Chinese of currency manipulation) isn't likely to change in the near future.

"The truth is … China really has no choice," Michael Pettis, a professor at the Guanghua School of Management in Beijing, says in an e-mail. "China does not want to hurt its export sector (on the contrary, it is trying to prop it up), and since no one else besides the United States can run such large trade deficits, China has no choice but to keep buying dollars."

If exchange rates and international reserves are something of a settled -- albeit controversial -- issue in both countries, the actual discussions are about changing the relationship of the two economies. For several years now, both China and the U.S. have been contemplating a kind of economic balancing act designed to provide long-term growth for both countries, and, incidentally, remove the incentives that lead to the stalemate over exchange rates and foreign reserves. (Tim Fernholz, American Prospect)

Beijing's Favorite Capitalists

Today, the Communist Party has proven itself, in all but one particular, a friend to the urbanites and professionals who now prosper in China's cities -- socioeconomically, the very kinds of people it gunned down in Tiananmen Square. All it asks of them in return is that they not actively seek democratic rights. For their part, the hundreds of millions of beneficiaries of China's new prosperity have kept up their end of that bargain. Knowing that they'd face the brute wrath of the party and state if they did, they've made an understandable decision.

In the countryside, where hundreds of millions of Chinese still reside, the benefits of the nation's economic miracle are far harder to detect. For many, the backbreaking drudgery of peasant life persists as it has for centuries. Some Sinologists believe that one reason the urban Chinese haven't demanded more rights is their fear that in a democratic China, they'd be outvoted by a peasantry that would demand a more equitable distribution of the nation's wealth.

According to the nostrums of Reagan Age America, the current Chinese system -- in equal measure capitalist and authoritarian -- cannot actually exist. Capitalism spread democracy, we were told ad nauseam by a steady stream of conservative hacks, free-trade apologists, government officials and American companies doing business in China. Given enough Starbuckses and McDonald's, provided with sufficient consumer choice, China would surely become a democracy.

And yet, it hasn't. And this week, Treasury Secretary Timothy Geithner has traveled there to assure its government that America won't permit China's massive investment in our government's notes to diminish in value, even if that means we have to cut back on needed public programs. In explaining China's rise and America's decline, historians may well note that capitalism -- American capitalism, anyway -- far from spreading democracy, actually has played a key role in transforming China into an authoritarian superpower. (Harold Meyerson, Washington Post)

China Is One Extreme, U.S. Is Another

Leslie Hook's "China's Lawyers Face a Crackdown" (op-ed, May 28) on China's legal crackdown fails to mention the U.S. as an example of what happens when lawyers are unfettered. China may go too far one way but the extreme laxness in the U.S. gives China a reason to be careful with freedom. Lawyers here cause a nonproductive 25% increase in the price of health care simply for defensive medicine. The cost of aviation equipment is 10 times higher when liability is attached than when the equipment is not "approved" but has the same capabilities. China doesn't have the asbestos or silicosis fiascos, ambulance chasers, hot coffee at McDonald's cases, etc. The U.S. could stand to become more like China rather than China emulating the U.S. Look to home before you accuse others. (Glenn Mysza, letter to Wall Street Journal)

India casting a wary eye on China's role in Pakistan

Washington's focus on Pakistan and economic dependence on China are forcing India to reassess its own place in South Asia, reviving long-standing fears of strategic encirclement by its giant northern neighbor. Analysts say Indian suspicions about China, suppressed during the boom years by burgeoning trade ties, have been stoked by Chinese involvement in Pakistan and a sense that Beijing has replaced India as the favored friend of the U.S. in the region.

“There is a very strong feeling that China is India's threat number one,” said Subhash Kapila at the South Asia Analysis Group, an Indian think-tank. Under former President George W. Bush, the United States forged close ties with India — in part seeing it as a counterweight to growing Chinese power — culminating in a deal effectively recognizing its nuclear-armed status. India and China also made efforts to mend relations soured by a border war in 1962, while their growing clout in the world economy earned them the nickname “Chindia.”

But with the financial crisis highlighting U.S. dependence on Beijing to bankroll its debt, India is fretting that while it acquired a friendship, China bought the U.S. economy. “During the Bush era, U.S. policy was seeking to build India as a counterweight to China,” Brahma Chellaney, from India's Centre for Policy Research, said at a conference in London. “As this was going on the Chinese and U.S. economic ties were getting thicker and thicker,” he said. “'Chimerica' is more meaningful than 'Chindia.'” (Myra MacDonald, China Post/Reuters)

Dollar Owner: China Gets Nervous

WE owe China more than a trillion dollars. For years, that country's sent us sneakers, microwave ovens and other stuff we like, and we've sent back green bits of paper adorned with American presidents. There isn't much China can do with these dollars, so it sends them back to pay us for the Treasury bills and notes -- our IOUs -- that they store in their vaults. That way, they earn some interest.

Now Chinese Premier Wen Jiabao and his colleagues are worried about getting paid some day. Not that America will go broke and leave China stuck with our IOUs, a situation in which so many General Motors bondholders find themselves. America can't go broke: We have printing presses that can print as many dollars as the Treasury orders. So we can pay off any debt to China -- or anyone else -- by running the presses faster and longer.

That's what has the Chinese so upset, and why the value of the dollar is hitting record lows in world markets. if you had lent our government a few-thousand dollars 10 years ago and got repaid today, you would find those dollars buying a lot less than the dollars you lent. That's what the Chinese fear.

Why should we worry? Well, if the Chinese regime decides to stop buying our IOUs -- or, worse still, to start selling some of the trillion or so they have in the vault -- we would have to pay more to get the dwindling band of buyers to lend us money. That means the Treasury would have to offer higher interest rates to unload its paper.

Sensible folks at the White House are nervous. They know that the president's plans for huge deficits will require running the presses and driving down the value of the dollar. Unless, of course, taxes go up. Way up. Which is why there is talk in Washington about a national sales tax. That would make the Chinese happy, but it might not go down so well here at home. (Irwin Stelzer, Hudson Institute)

After the crisis: China or America?

Two years ago, economist Moritz Schularick and I coined the word "Chimerica" to describe what we saw as the key relationship in the then-booming global economy: China plus America. Cheap Chinese labour was making US corporations highly profitable. Spendthrift American consumers, in turn, were keeping Chinese corporations busy with export orders. And the Chinese monetary authorities were converting export surpluses into dollar denominated reserves with the aim of preventing their own currency from appreciating. The unintended consequence was a multi-billion dollar credit line to the United States, financing America's deficit at rock-bottom rates.

In February, the People's Daily acknowledged the "global importance and influence" of Chimerica, but warned of an impending "period of chillness". Could this be one of those great turning points in history, when the balance of power tilts decisively away from an established power and towards a rising challenger? It is possible. Financial crises often accelerate the gradual shifting of the geopolitical tectonic plates; they are to history what earthquakes are to geology.

Just consider the impact of this crisis on the United States and China. According to the International Monetary Fund, the US economy will contract by 2.8 per cent this year – while China's is forecast to grow by more than 6 per cent. China has not been wholly unscathed by the astonishing collapse of exports that struck Asian economies in late 2008 and early 2009. Many more Chinese than American workers have lost their jobs since this crisis began. Yet I do not believe (as some Sino-pessimists do) that the regime in Beijing faces a serious threat of social unrest. Like other rising powers in past centuries, China is imbued with a remarkable sense of patriotism that is not just a product of Communist Party propaganda. People are proud of their country's economic miracle over the past 30 years. After two wretched centuries, they believe China is on the way back. People whose grandparents survived the Great Leap Forward and whose parents endured the Cultural Revolution can surely cope with a decline in the growth rate from 11 to 6 per cent.

In short, it may be time to start believing the projections made by Jim O'Neill and his colleagues at Goldman Sachs, who predicted just a few years ago that China's gross domestic product could equal that of the United States by 2027. Three years ago, China did not have a single bank among the world's top 20, measured by market capitalisation. Today the top three are all Chinese. In 2006, the United States had seven of the top 20 banks, including the top two; today it has three, and the biggest, JP Morgan Chase, is rated fifth. (Niall Ferguson, Telegraph)

U.S. Treasury names top China liaison officials

U.S. Treasury Secretary Timothy Geithner on Monday named two officials to liaise on economic affairs with China, a key trading partner and the biggest investor in U.S. government bonds.
 
David Loevinger will be Washington-based executive secretary and senior coordinator for China affairs and the Strategic and Economic Dialogue, a biannual forum begun by the Bush administration, the U.S. embassy in Beijing said in a statement. He is currently the Treasury's first permanent representative in China, where he is point person for economic issues including financial regulation, monetary policy and exchange rate policy.
David Dollar, currently the World Bank's country director for China and Mongolia, will be economic and financial emissary to China, based in Beijing, the embassy said.
Geithner is in Beijing this week for talks with Chinese counterparts, and to reassure them that Chinese holdings of U.S. dollar assets are safe. (Guardian)