Tuesday, July 28, 2009

G-2 summit: what each wants from the other

Business Times - 29 Jul 2009


G-2 summit: what each wants from the other

US wants China to keep financing its massive debt; China wants to see its US holdings safe

By LEON HADAR
WASHINGTON CORRESPONDENT

AS FOREIGN policy experts debate the nature of the evolving international system in the aftermath of the Cold War era's bipolar structure and against the backdrop of growing challenges to American unipolarism, some pundits have been promoting the concept of an emerging Sino-American duopoly in global affairs - a Group of Two (G-2).

In such a scheme, the two global military and economic powers - the US and the People's Republic of China - could manage their complex and multifaceted relationship that is bound to be a major factor in determining the fate of the world in the 21st century.

Chinese and American officials have rejected the notion that their governments are interested in forming such a global duopoly that would exclude other global players and allow them to impose their common interests on the rest of the international system.

They note that while Washington and Beijing do not regard each other as adversaries, their relationship does not amount to a strategic alliance. Instead, the two governments are competitors in some areas and partners in others, which makes it impossible for them to establish a long-term and effective geostrategic cooperative system and solve global problems between them. It remains to be seen how that concept will turn out.

But as American and Chinese officials began two days of high-level talks in Washington on Monday, both sides seem to agree that very few of the era's global problems can be successfully dealt with if Washington and Beijing disagree. Indeed, US President Barack Obama stressed on Monday the importance of expanding the strategic and economic dialogue between the United States and China, not only in terms of the common interests of the two nations but also as part of an effort to stabilise the international system and to increase global economic prosperity.

'We cannot predict with certainty what the future will bring, but we can be certain about the issues that will define our times,' President Obama said in opening remarks at the US-China Strategic and Economic Dialogue at the Ronald Reagan Building & International Trade Center in Washington, as he welcomed a gathering of scores of US and Chinese Cabinet ministers and their deputies.

He called for closer bilateral cooperation on major issues, including the economy, energy and nuclear proliferation. 'And we also know this: the relationship between the United States and China will shape the 21st century, which makes it as important as any bilateral relationship in the world,' Mr Obama said. 'That really must underpin our partnership; that is the responsibility that together we bear.'

Both President Obama and the head of the Chinese delegation, State Councillor Dai Bingguo, acknowledged the policy differences that separate the two countries, while stressing the need for an ongoing dialogue.

As Mr Dai put it: 'We're actually in the same big boat that has been hit by fierce wind and huge waves . . . what we can do is to follow the trend of the development of our times, try to cross the stormy water together as passengers of this boat, to seek harmonious co-existence and willing cooperation.'

The US-China dialogue that started under the administration of ex-president George W Bush was dominated by economic issues and was led by the two governments' leading economic officials.

But President Obama and his aides have stressed the need for the new dialogue to deal with a wide range of bilateral and economic issues, including national security and the environment. That explains why US Secretary of State Hillary Clinton joined Treasury Secretary Timothy Geithner in leading the American delegation to the talks.

The major challenge confronting the world's biggest and one of the world's fastest-growing economies is economic by nature - the global recession - and Mr Obama stressed in his opening remarks 'our mutual interest in a lasting economic recovery'.

The current crisis 'has made it clear that the choices made within our borders reverberate across the global economy - and this is true not just of New York and Seattle, but Shanghai and Shenzhen as well', Mr Obama said. 'That is why we must remain committed to strong bilateral and multilateral coordination. And that is the example we have set by acting aggressively to restore growth, prevent a deeper recession and save jobs for our people.'

To put things in more practical terms, US officials are hoping that China, which holds some US$800 billion in US government debt, will continue investing in the US economy and help finance America's massive financial bailouts and stimulus packages.

The Obama administration is also interested in using the recession to shrink the imbalance in the trade relationship between the two countries - a point raised by the president during his remarks. 'And as Americans save more and Chinese are able to spend more, we can put growth on a more sustainable foundation because just as China has benefited from substantial investment and profitable exports, China can also be an enormous market for American goods,' Mr Obama said.

At the same time, the Chinese want assurances from the Americans that US government efforts to spend its way out of the recession will not hurt China's investments in US Treasuries.

The Chinese delegation is hoping to learn from the Americans how they plan to control the soaring US budget deficit that is placing enormous downward pressure on the value of the US dollar.

Treasury Secretary Geithner tried to assure the Chinese delegation that the United States would reduce the deficit, which is expected to reach US$1.8 trillion this year. 'Private savings are up and our external deficit has fallen,' Mr Geithner said. 'We are committed to taking the necessary measures to bring our fiscal deficits down to a more sustainable level, once recovery is firmly established.'


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