Monday, June 23, 2008

The sensible way to bridge the Sino-US gulf

Business Times - 24 Jun 2008

By LEON HADAR
WASHINGTON CORRESPONDENT

+THE New York Times, in a front-page story last week, reported that against the backdrop of the American housing and financial crises and the continuing economic boom in China, Chinese officials have been projecting a new sense of self-confidence in their dealings with their US counterparts. The Chinese, it seems, are less willing to put up with the typical American bashing of their management of their economy while expressing their own criticism of American economic policies.

But what The New York Times didn't report is that the new Chinese attitude is a mirror-image of the American stance, with US officials and lawmakers exhibiting a certain humility during their exchanges with the Chinese these days. Indeed, in the aftermath of Iraq and Katrina, the sub-prime mortgage mess and the financial crunch, Americans are recognising that they are not in a position to lecture the Chinese on how to manage their economic system, or indeed, confront any other domestic and foreign policy issue.

As a result of these new attitudes on both sides of the Pacific, the Sino-American relationship may be becoming more 'normal' in the sense that there is a growing recognition in Washington and Beijing that their differences need to be managed through the pragmatic give-and-take of diplomatic exchange.

Indeed, this sense of realism was evident last week, when China and the United States concluded the fourth round of their Strategic Economic Dialogue (SED), at the US Naval Academy in Annapolis, Maryland, with top Chinese and American officials signing a 10-year energy and environment cooperation framework as well as agreeing to start negotiations on a bilateral investment protection accord.

A new bilateral investment treaty will not be completed before the new US president enters office next year. And in any case, there has been a dramatic increase in the flow of investment funds from China into the American economy, and vice versa, in recent years.

The concern in the United States is that the Chinese are using various restrictions on American investment as part of an effort to protect selected national companies from foreign competition. Equally, the Chinese are worried that officials and lawmakers in Washington are citing national security as a way of preventing Chinese companies from buying US productive assets. Continuing talks between the two governments on common investment standards could help reduce some of the tensions over this issue.

And while the new focus in the SED forum on environmental and energy policy issues is not going to produce any major reduction in energy consumption behaviour by the two economies, it does reflect a growing consensus that it would not be possible to reach a global accord on dealing with climate change without a prior agreement between Washington and Beijing on this issue.

In many ways, the SED has become a forum that is less prone to the kind of China-bashing that seems to dominate the debate on US-China policy on Capitol Hill. The negotiators in these meetings set realistic expectations as they consider long-run costs and benefits of policy alternatives. Instead of bombastic rhetoric that tends to produce accusations and counter-accusations that depict one side as challenging the core national interests of the other, and the ensuing threats to, say, impose a heavy duty on all Chinese imports unless the yuan is revalued, the focus in the SED forum is on incremental progress on such 'technical' issues as product safety where compromises are achievable.

At the same time, while the talks also covered the structural issues such as those that underlie the trade imbalances between the two economies (the US trade deficit with China climbed to a record US$250 billion last year) - the result of excessive saving in China and excessive spending in the US - both sides understand that there is no magic formula for resolving these problems that reflect long-term economic, political and perhaps even cultural trends.

American critics of the SED have been displeased that the nature of the forum tends to be deliberative instead of confrontational. But these critics should recognise that their confrontational approach towards China has failed to produce any progress in resolving some of the legitimate US complaints about Chinese trade and investment policies. Washington should face the reality that America's geo-strategic and geo-economic problems have eroded its ability to use threats to force the Chinese to change their economic policies. The process introduced through the SED forum seems to be the more realistic way to try to advance common US and Chinese interests.


Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.

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