Tuesday, May 22, 2007


"We both face challenges of domestic protectionism and questions about the merits of trade and globalization. There is a growing skepticism in each country about the others' intentions. Unfortunately, in America this is manifesting itself as anti-China sentiment as China becomes a symbol of the real and imagined downside of global competition. That argument is fueled by the evidence of persistent trade and financial imbalances. China has its own opposition, with its own set of arguments. The purpose of this on-going dialogue is to have candid discussions and find ways to ease, rather than increase, these tensions.

A look back demonstrates, of course, that increasing our ties has benefited both our people. China's presence in the global economy has raised living standards in China and fueled growth around the world. Ten years ago, China was an outsider in the global marketplace; other countries set the rules and China was expected to abide by them. Now, China is a member of the WTO, a dynamic economic force and a model for other developing countries. China is able to help lead and define the rules. Neither America nor China can shrink from the role we have carved for ourselves in the world. We both must exercise leadership, in positive and productive ways. I have no doubt that our proud, strong countries can fulfill this responsibility.

The United States is supportive of a stable and prosperous China. We are not afraid of the competition. We welcome it, because competition makes us stronger. It is therefore in our interest to support China's continuing efforts to open its economy. As I have said before, our policy disagreements are not about the direction of change, but about the pace of change. Americans have many virtues ---we are a hard-working, innovative people---but we are also impatient. Even the notion of a "dialogue" may seem too passive for America's action-oriented ethic. It is up to us, over these two days and in the work that follows, to show that words are precursors to action

Treasury Secretary Henry Paulson, 22nd May A. D. 2007, Opening Remarks at the 2nd Round of the Sino-American 'Strategic Economic Dialogue'. In www.treasury.gov.

"I believe that we are going to achieve results that we would not have achieved without this dialogue....I believe that we have greater co-operation than we had before we established the strategic economic dialogue".

Treasury Secretary Henry Paulson in Financial Times, 22nd May 2007, p. 2.

As it will be readily apparent from the title of our entry today, we are extremely skeptical, that the aforementioned 'strategic economic dialogue', between the United States and Peking, will 'achieve' anything. Anything that is, other than some additional hot air. Perhaps, it might, just might, achieve what Secretary Paulson, and people of his ilk, id est, the top tier of the Financial Services industry want from the PRC at the moment: liberalizing and opening up, China's Financial Services industry. Aside from that, as well as some noises about the PRC allowing its currency to float a bit higher vis-`a-vis the dollar, and other currencies, there is nothing in these talks which will have any concrete impact on the massive trade deficit that the United States runs with the PRC. Last year to the tune of over Two Hundred & Thirty Billion dollars (see: www.census.gov/foreign-trade/balance). An increase of two and half times in less than five years. In the same time frame, China has grown a massive current account surplus, of upwards of 1.3 Trillion Dollars, the greatest in the world. Judging from the expenditure of mere talk, correlated to the Sino-American trade deficit, it would appear that the more American officialdom 'talks' about the problem, the greater the problem becomes...Or at least that is what the available statistics say.

In essence, the whole purpose of the 'dialogue', is to give the appearance the Bush regime, like its predecessors, is 'doing something' or better yet, appearing to be doing something about the problem. When in fact, a 'do nothing'policy is in fact, the real, bipartisan, Republican and Democratic, position on dealing with the PRC, as a trading partner. Why? Simply put, the interests which support open access to American markets by the PRC (or other countries for that matter), are for good or for ill, are, have been and will be in ascendancy in the American polity: urbanized, post-enlightenment, liberal bourgeois cosmopolitan elites. Of which Secretary Paulson, the ex-President of Goldman Sachs, is the exemplar, par excellence. For such individuals, there are no 'downsides' to the ongoing Chinese trade penetration of the American (and other) markets. The time is no doubt well past, when a severe clampdown on the flood of cheap, Chinese goods to the American market was possible. In any case, for a better look at the Sino-American economic talks going on in Washington, we urge that you take a look at the following excerpts from an article by the American online journal, Stratfor.com (www.stratfor.com). As per the above, the article quite clearly shows that the Bush administration, like the Clinton Administration before it, is in fact not at all inclined to push any coercive levers vis`-a-vis Peking, in order to obtain concessions on the trade front. With essentially any noises being made for the purpose of attempting to show the American Congress, that 'something' positive is being done to resolve the problem. When in fact, no such thing ever occurs....As for the other key aspect of the article, one which we find to be a dangerous idea and notion indeed. That the United States should align itself with the PRC in order to 'balance off' a resurgent Russia. We find this to be nonsensical. By definition, the United States and Russia, both repositories (albeit in quite differing fashions) of Western and indeed European civilization and culture, should be naturally much more aligned than either with the Asiatic PRC. Unfortunately, our neo-conservative ideologues, in or out of power, see Russia's (relative) resurgence as a cause for concern, rather than one for hope. On that note, we encourage you to peruse Mr. Baker's article for its undoubted insights into the ongoing, charade of the Sino-American 'economic dialogue':

China, U.S.: The Strategic Economic Dialogue as a Tool for Managing Relations
By Rodger Baker

"Chinese Vice Premier Wu Yi is in Washington to meet with U.S. Treasury Secretary Henry Paulson for the second of the planned biannual Strategic Economic Dialogue (SED) sessions between the two countries. The dialogue brings together representatives of numerous ministries on both sides of the Pacific, covering finance, labor, trade, agriculture and the environment, among others. As the talks get under way, business and media attention is focused almost exclusively on two main issues: the Chinese-U.S. trade imbalance and China's undervaluing of the yuan.

The dialogue, however, is designed to integrate a much broader array of issues between Beijing and Washington, moving beyond trade to the larger matter of how the world's only remaining superpower deals with the rapid emergence of China on the international economic and political scene. For Washington, the dialogue is a tool to manage China's international relations as much as China's economic development. And for Beijing, the dialogue represents an attempt to shape relations with the United States in terms of economic cooperation, rather than strategic competition.

The economic framework for discussions seems to appeal to both Washington and Beijing, and the current dialogue, then, serves as a convenient tool for managing relations that sit on a much broader geopolitical framework. Still in its early stages, the SED reflects a changing dynamic in the management of U.S.-Chinese relations. From Beijing's perspective, the SED is a way to focus on the potential positive elements of U.S.-Chinese ties -- business and trade -- and reduce attention on questions of the "China threat" and the emergence of China as a military competitor to the United States.

The SED serves, in Beijing's mind, as one way of using the U.S. administration as a balance to the U.S. Congress. If the administration is looking at the broader strategic issues posed by China's global emergence, then it will be less likely to accede to congressional politicking on the China issue -- or so Beijing hopes. China sees the U.S. Congress as "unsophisticated" on China issues, and Capitol Hill as a place where short-term political interests, based to a large degree on electioneering and campaign contributions, drive periodic spurts of anti-Chinese rhetoric. However, during the past two decades, Beijing itself has grown a little more sophisticated in its understanding of U.S. politics, and has moved past dealing primarily with image management at the presidential and ministerial level to trying to shape U.S. political views from the ground up.

With the rapid rise of the Chinese economy in the aftermath of the Asian economic crisis and Beijing's entry into the World Trade Organization, China looked to both protect its growing economic connections and expand its international influence in the post-Cold War environment. With the Soviet Union gone and Europe failing to rise as a counterbalance to the United States, China set its sights on Washington as the biggest challenge to Chinese power -- and yet the best economic path to Chinese growth. Washington was headed for a presidential change, Beijing was dealing with increasing U.S. warnings of the China threat and the Chinese government was looking at its own upcoming leadership transition and the internal battle over best economic policies and security posture. For each of these issues, managing relations with the United States became the critical common factor....

And Beijing is seeing a payoff, at least on the surface. When the current administration took power, relations with Washington were contentious to say the least. U.S. President George W. Bush came into office with a Cabinet that viewed China as the next strategic threat now that the Soviet Union was relegated to history. China's economic rise, and its military expansion that focused on new missiles and naval technology, was seen as a challenge to U.S. dominance of the seas, and thus to U.S. core national security. Now, the administration is pursuing strategic dialogue and cooperation with China, even if this is just a stopgap measure until Washington can free itself from Iraq.

In 2001, after the 9/11 attacks, Washington and Beijing came to a working arrangement. The United States would essentially leave China alone, and China would not present any direct challenge to the United States as Washington dealt with what it saw as a new strategic threat: al Qaeda and international Islamist militancy. Beijing welcomed the reprieve from the more contentious relations with Washington, which had declined precipitously following the collision that left a U.S. reconnaissance aircraft on a military runway in southern China.

At the time, Beijing was neither militarily nor politically prepared to square off against the United States. In fact, China was facing a major generational shift in leadership and needed the external buffer to allow Beijing to focus on internal issues. With the political transition completed, Beijing then shifted focus to economic and social stability -- and again used the minimal external pressure from Washington to give it breathing room while these issues took priority....

By 2005, Washington was looking at longer-term involvement in Iraq than it had planned, and then-U.S. Deputy Secretary of State Robert Zoellick made an indirect offer to Beijing for closer potential cooperation -- offering to treat China as a global player if Beijing proved a "responsible stakeholder." The offer appealed to Beijing, and China, cautiously at first but with increasing boldness, launched into a more open dialogue with Washington, making token trades on currency issues and offering its services in "rogue" nations such as North Korea and, more recently, Sudan in order to demonstrate its "responsibility" and keep real pressure from the United states to a minimum.

While the U.S. administration, particularly the Pentagon, was not all that reassured by China's behavioral change (as seen in early 2006 with a series of reports labeling China a strategic threat and culminating in a several-minute-long tirade by a Falun Gong activist at the White House reception for Chinese President Hu Jintao), Washington, with the exception of Congress, has taken a relatively relaxed approach to China. Trade issues dominate the headlines, as does the yuan valuation, but the administration pushes for more cooperative dialogue with Beijing rather than punitive sanctions or tariffs.

On Beijing's side, shortly after the first SED meeting in December 2006, China's Foreign Ministry launched the Center for China-U.S. Relations Studies at its research institute, the China Institute for International Studies. The center is designed to bring together top Chinese scholars on U.S. issues from across a broad spectrum of China (economic, international relations, security and others) and encourage increased exchanges with counterparts in the United States -- thus managing the perception campaign from a unified center. Earlier this year, China also appointed Yang Jiechi as foreign minister, calling on Yang's years of experience in the Chinese Embassy in Washington, his work with both sides of Congress and his long-standing ties with the Bush family.

The SED, then, provides both Washington and Beijing with a more centralized (and less random) point of contact for managing bilateral relations. But management and fundamental alterations are very different things. China's trade and economic policies will not be set with Washington's concerns as the top priority. Beijing's first concern is the maintenance of Communist Party rule, followed closely by the maintenance of social stability (which allows the party to remain in power). Economics are a tool, one that must balance domestic social pressures with international concerns. Furthermore, while dialogue can provide a channel for managing relations with the United States, China is not abandoning other tools for preserving its increasing economic vulnerabilities as its trade and energy requirements are internationalized.

China's anti-satellite weapons (ASAT) test in January was a clear reminder that China still sees the United States as the top challenge to Chinese economic security. China is a land power, not a maritime power. But China's economics have grown increasingly linked to longer and longer supply lines, particularly with energy imports. As such, Beijing sees a major vulnerability in its supply routes, as a large portion of its energy must pass through waters that, for all intents and purposes, are controlled by the United States. The ASAT test was intended to notify Washington that Beijing has ways to deal with the U.S. strategic dominance of the seas by threatening critical U.S. communications and guidance infrastructure.

China's vulnerabilities as a land power increasingly dependent on sea routes makes Beijing always extremely nervous about the United States, regardless of whether Washington intends to interdict Chinese trade and energy supplies. At the same time, China's expanding trade and political links around the globe are starting to rub up against U.S. strategic interests, particularly where China taps into energy resources Washington wants, or where Beijing's relations in places like Africa and Latin America challenge U.S. access to raw materials. But economic competition notwithstanding, Washington is loath to directly confront China, as attacking a land power in Asia is never wise or easy....

There is something beyond the SED, however, that could start bringing Washington and Beijing closer together: the re-emergence of Moscow....

This could provide the impetus for a Beijing move closer to Washington -- to keep the United States focused on Russian threats rather than Chinese concerns. Beijing already has experience working with the United States to counter Russian influence, and keeping the current and former superpowers eyeing each other leaves China a less visible threat, and thus capable of continuing to deal with its own internal issues while facing minimal pressure from outside. As Beijing sees it, if a true multipolar world cannot be established any time soon, the hints of a return to a bipolar world order -- with Russia facing off against the United States -- could keep China out of the crosshairs and constrain U.S. actions. With the SED already in place, China has another pathway through which to shape its own image as cooperative, and perhaps drop a few hints of its concerns about Russia".


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