Friday, February 17, 2012

China can help speed up US economic growth

Business Times - 18 Feb 2012


China can help speed up US economic growth

But economic, geo-strategic components in the complex Sino-American relationship are tangled

By LEON HADAR
WASHINGTON CORRESPONDENT

IT is not surprising that China bashing is being embraced by US politicians campaigning for votes in this election year dominated by nationalist, xenophobic and anti-immigrant sentiments.

Indeed, when you are targeting the financially distressed American electorate, angry that their well-paid manufacturing jobs are allegedly being stolen by scheming foreigners, one effective way to win votes is by stirring up resentment against China's prosperity - seen by many Americans as an outcome of a well-coordinated strategy aimed at destroying the American economy.

That may explain why Michigan Republican Senate candidate Peter Hoekstra decided to launch his campaign against incumbent Democratic Senator Debbie Stabenow on Super Bowl Sunday by running a television ad which introduces a young Chinese woman who against the backdrop of rice paddies and in broken English 'thanks' Senator Stabenow for helping to weaken the American economy and strengthen China's.

The irony is that such a crude form of China bashing comes at a time when US politicians are recognising that there is not much that they can do to 'punish' China for its alleged economic transgressions. More subtle forms of China bashing are also going on: Those advanced by the White House and the Republican presidential candidates who are depicting China's economic competition as either a 'threat' (the Republicans) or a 'challenge' (the White House) to US interests. Yet, everyone realises that, if anything, enhancing cooperation with the Chinese would be one way to accelerate American economic growth.

President Obama has used his recent State of the Union Address to pledge that he would take a tough stand to force the Chinese to end manipulating its currency and subsidising its exporters. The White House has also launched a new trade enforcement task force that is largely aimed at China. And a number of trade disputes, including one over solar panels, has increased tensions between the two countries.

And Democratic and Republican lawmakers are continuing to threaten to act against China in retaliation for undervaluing its currency as part of its effort to increase its exports.

So what to make of China's Vice-President Xi Jinping being greeted in Washington this week like the head of state that he is expected to become next year? Well, its just one example of the way that both the White House and Congress are also trying to solidify the economic and diplomatic ties with Beijing. Anti-China rhetoric may be helpful in winning elections but not so if you are trying to encourage Chinese investment in the American economy.

Indeed, out of US$68 billion in China's overseas investments - expected to grow to US$1 trillion by the end of the decade - only a small slice goes to the US - around US$1.13 billion which amounted to about 2 per cent of all the total foreign investment in the American economy (and even though the US currently receives about 15 per cent of total global investment).

According to James M Lindsay, senior vice-president at the Council on Foreign Relations, a New York-based think tank, Chinese investments could underwrite new plants and factories and stimulate growth and create new jobs in the US. But more Chinese investment in the US 'means more Chinese access to US technology' and that, according to Dr Lindsey, continues to be a concern to American officials and business executives who have encouraged the enactment of trade barriers to Chinese investment for both US high-tech and national-security industries.

Indeed, back in 2005, the Chinese state-owned oil company CNOOC pulled out of an US$18.5 billion takeover bid for the US oil company Unocal, citing a US political environment that presented an 'unacceptable risk'. And a year ago, Chinese telecom giant Huawei Technologies backed off a patent deal before the White House could block the deal citing national security concerns.

Removing obstacles to Chinese investment in the US while pressing China to respond to American complaints about Chinese hacking into US companies and alleged theft of American high-tech secrets were discussed during Mr Xi's meeting with officials and business executives during his visit. But no one expect that the visit would produce a dramatic change in Chinese investment in the US.

Instead, as economist David Marchick of the Carlyle Group points out in a recent paper The Renewing America initiative, Washington needs to work with the Chinese on the issue by removing misperceptions about American intentions and eliminating unnecessary legal and bureaucratic obstacles.

Mr Marchick recalls that despite the fact the Japanese markets remained largely closed to US exports, economic relations between Japan and the US actually improved in the 1980s after the Japanese started investing heavily in the US and helped in creating new American manufacturing jobs.

One result of this expanding Japanese investment in the US has been the growing political ties between US lawmakers and Japanese companies that built new factories in their districts. In a way, by investing directly in the American economy and creating new jobs in the country, the Japanese also helped bring an end to the Japan bashing campaigns on Capitol Hill and in state capitals.

The Chinese could certainly draw a lesson from this Japanese experience and conclude that by helping create American jobs they could change public sentiment and political attitudes. But there is one major difference between US relationship with Japan and China. Tokyo has been a important strategic ally of the US since the 1950s, while China is regarded as a leading geo-strategic competitor.

The issue has been highlighted recently as the Obama Administration announced its plans to 'pivot' towards East Asia and increase its military presence in the region which Beijing regards as part of a US strategy to contain its rise as a military power. It shows how tangled economic and geo-strategic components are in the complex Sino-American relationship.

btworld@sph.com.sg
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