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Resetting ties between China and US

25 January, 2011

By Dr Maleeha Lodhi


Resetting ties between China and US
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The pomp and ceremony of the Chinese President’s visit to Washington was matched by the substance of the January 19 summit between the leaders of the world’s two most powerful nations.

The four-day state visit saw mutual assurances of cooperation and $45 billion worth of trade deals to affirm what is widely described as the world’s most important bilateral relationship.

Those in America and beyond who see China’s rise as a threat and warn of a new cold war would have been disappointed by the outcome of a visit that helped to reset ties between Beijing and Washington and give a fresh direction to their engagement on key bilateral and global issues.

After more than a year of turbulence in Sino-American relations on a host of economic and security issues President Hu Jintao’s Washington trip offered an opportunity to put relations on a more stable course.

To take the edge off Congressional criticism and accusations from opposition figures that President Obama had pursued an approach that was too accommodating of Beijing, the administration orchestrated a series of public pronouncements by several cabinet members to indicate that it would take a forceful position on many issues of US concern.

But during the visit it was the stress on shared interests and mutual benefit that dominated. Even though at his joint press conference with the Chinese leader President Obama made forthright references to areas of disagreement – including Beijing’s currency and human rights policies – the harmonious tone that was struck throughout the visit reflected the co-dependence between the two largest economies of the world.

This does not mean that disputes that surfaced over the past year or more will dissipate or disappear. The list of divergences is long and includes China’s exchange rate policy, which US officials claim undervalues the yuan to give Beijing an export advantage. It extends to other economic issues such as trade imbalances, market access, intellectual property rights and technology transfers. And it includes political and military issues such as US arms sales to Taiwan and support of the Dalai Lama, sovereignty of islands and access to the seas around China, American military activism in the Pacific, as well as how to deal with Iran and North Korea.

There are suspicions in both countries about the other’s long-term strategic intentions with significant sections of public opinion viewing the other as an adversary rather than as a partner. Mistrust in Beijing has been fuelled by a series of American diplomatic moves last year – including President Obama’s Asian tour in November – that seemed to indicate an evolving US strategy to contain China’s rise.

The nature of this tour – to India, Indonesia, South Korea and Japan – and policy pronouncements, such as America’s offer to “mediate” ocean border disputes in South East Asia, its stance on the turbulence in North East Asia and the currency dispute with Beijing, were widely read as signs of a policy to hold China down.

Similarly Washington has viewed with suspicion China’s growing global economic reach and expanding military capabilities. It has voiced concern about what it sees as a Chinese military build-up in the Pacific. Secretary of Defence Robert Gates said recently that the US would seek to counter this by increasing investment in weapons and technology.

The Washington summit however showed that both sides were keen to manage these differences and not allow them to derail the relationship. At a news conference before the visit Vice Foreign Minister Cui Tiankai stressed that despite frictions, their cooperation will be guided by common interests.

President Hu himself said ahead of his trip that “both stand to gain from a sound relationship and lose from confrontation”. President Obama reciprocated by declaring: “both countries had an enormous stake in each other’s success”.

The imperative to cooperate rests on compelling factors. The two countries have increasingly become so economically interdependent that despite eruption of tensions on political and trade issues, both have reason to avoid instability in their relations.

A mutuality of economic interests underpins the Sino-US relationship. China is America’s leading international creditor while America is China’s biggest market.

As the largest exporter to the US, China supplies products that have helped American consumers maintain a standard of living that would not otherwise be possible. Inexpensive Chinese goods have also kept prices down.

The trade surplus – as China exports far more than what it imports from the US – is held by Beijing in the form of debt instruments including US Treasury bonds and other American assets. This has kept interests rates low in America, enabling continued consumer spending and helping the US fund its current account deficit.

The economic imbalances make America China’s largest debtor. But both countries have important stakes in each other’s economic future. China has an interest in not seeing the dollar lose value as that would wipe out a considerable proportion of the wealth it has accumulated and erode the value of the US securities it holds and continues to buy. Beijing also stands to gain from America’s economic recovery that will produce higher consumer spending.

Despite frequent complaints by both sides about each other’s economic policies – ranging from currency to protectionism – they have a shared interest in managing the tensions generated by their economic competition.

But both sides are unlikely to yield on areas of vital political and military concerns. This too was evident from the Chinese leader’s visit. While President Hu made conciliatory statements, he also reiterated China’s red lines. He stated for example that “Taiwan and Tibet concern China’s sovereign and territorial integrity and represent China’s core interests” and indicated that these were non-negotiable.

On exchange rate policy the Chinese President responded to American complaints by saying that “changes in the currency imbalance” had been made but disputed this was the problem. “It’s that we, China, are more productive, and have lower labour costs”, he stressed. Interestingly this view was echoed by President Obama’s newly appointed economic advisor, Jeffrey Immelt who said that “anybody who thinks the valuation of the renminbi is solely responsible for China’s trade surplus is wrong.”

President Hu repeatedly said during his visit that smooth relations depended on “how well the two countries handled issues involving each other’s major interests”. And he called for both nations to respect each other’s “choice of development paths and each other’s core interests”. Ties had to be based on “mutual respect”.

The question raised for the future of Sino-American relations is how economic interdependence will be balanced with issues of contention on which both sides have firm positions. Writing before President Hu’s visit, Henry Kissinger, the architect of the opening of US relations with China, warned against self-fulfilling prophesies on both sides by those who emphasised conflict rather than cooperation.

“Conflict is not inherent in a nation’s rise and Sino-US relations need not take that turn.” Pointing out that on most issues the two countries have been adequately cooperating, Kissinger suggested that what they lacked was an overarching concept for that cooperation. This he said was hard to come by in a globalised world that imposes a multiplicity of new tasks at a moment of political, economic and technological transformation. Kissinger saw reconciling the two countries self-perception of their exceptionalism as the “deepest challenge” of Chinese-American relations.

Another significant challenge is how the US and its allies adapt to the rise of the world’s fastest growing power. This means, among other things, coming to terms with a China no longer only preoccupied by building its economic might but one seeking to translate that power into a more assertive global role.

 

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