Category Archives: China-U.S.

What Can Beijing Expect From Obama 2.0?

U.S. President Barack Obama’s re-election has made moot the vacuous threat that China would be declared a currency manipulator on day one of the new administration as the Republican challenger Mitt Romney had promised to do had he won. Though China’s senior officials know enough of American presidential campaigns to ignore the shrillest words spoken on the campaign trail (and we may have Harvard University to thank for some of that, according to Bloomberg), Beijing is rarely a big fan of change. It will be happier with the devil it knows. One point of relief all round is that the unpredictability of an early test of a President Romney by Pyongyang will have been avoided. Yet it is worth asking how a second term Obama administration’s policy towards China could change from the first.

That was marked by Washington’s Asian pivot in foreign policy, still seen as a policy of containment of China by a hegemonic U.S. It will not escape Beijing’s notice that Obama’s first post-re-election-victory foreign trip will take in its old ally, Myanmar, which is shaping up as a testing ground of the competing thesis of whether economic reform has to precede political reform, the so-called Beijing consensus, or whether the two can move in lockstep, the Washington view. Yet the relationship between the superpowers is better characterized as increasingly tetchy, particularly over trade, tempered by the reality that they still have to deal with each other on a range of issues where their interests also range from competitive to common.

There was a cautionary note in Beijing’s official congratulations to Obama on his re-election, an expression of hope that the end to the election campaign would put an end to what it called the China-bashing game. That was played louder and more irrationally on the campaign trail by Romney, as is the wont of challengers unencumbered by the reality of office. Obama, as an incumbent, gets to play it for real.

The Obama administration has been ratcheting up the number of complaints about China it has filed to the World Trade Organization (and Beijing has responded in kind, we should note). There was one that is particularly significant to this Bystander’s eye. In September, Washington formally complained to the WTO about what it said were unfair subsidies to China’s auto and auto-parts makers. Obama needed, and got, the American auto workers vote this week. It won for him Ohio, one of half dozen key swing states with large numbers of electoral college votes and where one in eight jobs is tied to the auto industry, and Michigan, home state of Detroit and the Romney family as it happens. The labour vote also won for Obama Wisconsin, home state of Romney’s running mate, Paul Ryan.

One WTO complaint filing doesn’t make a swing, of course. Obama’s bail out of General Motors and Chrysler after the 2008 global financial crisis mattered a great deal more. Oddly, that was a lot less politically popular at the time of 2010’s mid-term elections, in which Obama’s Democrats were pummeled. But we do expect organized labor to be looking for a thank-you for turning that round and rallying to Obama’s cause this time.

We think that will manifest itself as intensifying trade disputes with Beijing, not just over the traditional parts of the car industry, such as tires and auto parts, but also wherever it touches the new technologies for alternative fuels and electric vehicles, solar power being one example of where it is already happening. As the Obama administration has been subsidizing electric vehicle development, that will provide plenty of scope, too, for Beijing to retaliate.

Greater trade friction is also inevitable as recovery of the U.S. economy requires export growth, an avowed Obama goal, and with that acceleration of  bi- and multi-lateral free trade negotiations, a game Beijing is playing, too. The TransPacific Trade Partnership could become a priority project for Obama as he looks to foreign policy in his second term to define his legacy. If there is a silver lining to any of that, it is that the detailed and unglamorous work of trade diplomacy could become a proxy for the security relationship, which then has some room to deteriorate, if it needs to on a rhetorical rather than real basis–and that might be driven as much as anything by internal Chinese politics as Xi Jinping establishes his grip on power with former Presidents Hu and Jiang looking over either shoulder.

There is one piece of change that we know is coming to Washington’s diplomatic front. U.S. Secretary of State Hilary Clinton has said she won’t do a second term in that exhausting office, and her assistant secretary of state for East Asia, Kurt Campbell, is also unlikely to continue. Senator John Kerry and U.N. ambassador Susan Rice are two names being floated as Clinton’s successor. Kerry might be the more welcome in Beijing. Rice would come fresh from the Security Council battles over Iraq and Syria.

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Beijing, Tokyo and Seoul To Start Formal Free Trade Pact Talks

As regular readers will know, we have been following the progress on a potential free trade agreement between China, South Korea and Japan for some time–and the shadow play for economic influence in the Asia-Pacific region being acted out through trade agreements by Beijing and Washington. The leaders of the three Asian neighbors have now agreed to start formal negotiations. We thought it timely to republish our post from last December.

China, Japan and South Korea have been discussing creating a free-trade zone for some years. Every time their leaders meet, in pairs or collectively, the language used to describe progress is increasingly purposeful. Prime Minister Wen Jiabao and his visiting Japanese counterpart, Yoshihiko Noda, now say the discussions have reached the point where formal negotiations could start next year.

The three countries are already closely tied by trade and investment as well as physical proximity. Japan and South Korea are China’s largest trade partners after the U.S. and the E.U. The agreement to settle yuan-yen trade currency conversions directly, also announced during Noda’s visit, will only help boost economic ties.

Similarly Beijing’s approval for the Japan Bank for International Cooperation (the old Ex-Im Bank) to issue yuan-denominated bonds in China–a first for a foreign government agency– and Tokyo’s plan to hold a small amount of Chinese government bonds in its official reserves support the internationalization of the yuan, and thus provide a growing alternative to the dollar as the working currency of any trilateral free-trade zone.

Those existing and coming economic links make it more likely that a free trade agreement can be stuck between the three before agreement is reached on setting up the much larger proposed Trans-Pacific Partnership (TPP) that the U.S. now wants to join and promote but from which China is being excluded. Indeed the TPP may have provided some impetus to China, Japan and South Korea’s discussions. Together the trio account for 16% of world GDP, so a free trade agreement between them would create a formidable bloc just by dint of their economic size alone.

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Yuan Again Said To Be In Balance With U.S. Dollar

At the end of a fraught week for China-U.S. relations on the diplomatic front, state media aren’t letting the economic side of the relationship get away scot free. The People’s Daily says that the yuan is in equilibrium with the dollar, and may even be too high (here via Reuters). The article, from the Chinese Academy of Social Sciences, the leading think tank, follows U.S. Treasury Secretary Timothy Geithner saying during the strategic dialogue talks this week that the currency should move higher against the greenback to allow for more flexible policy. The yuan has risen by almost a third against the dollar since the peg between the two was broken in 2005.

This is not the first time that Beijing has put forward the proposition that the yuan is now at a reasonable exchange rate against the dollar. Zhou Xiaochuan, governor of the People’s Bank of China, said as much earlier this week at a press conference during the talks, as did a Bank of China report in late March. None of that is likely to mollify American critics of China’s exchange-rate regime. Yet we are relieved, in one sense, to see the China-U.S. relationship returning to familiar ground.

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Moving On

Not very, is the answer to the question we posed about the stickiness of the initial deal between Beijing and Washington over the activist Chen Guangcheng. The deal’s second incarnation, now seemingly in the making, will let Chen go to the U.S. to study law, accompanied by his family. There, if history is prologue, he will fade into anonymity.

Beijing has in the past been ready to let dissidents and activists leave the country, if they go quietly. Chen’s flight from illegal house arrest by provincial officials in Shandong to the refuge of the U.S. embassy in Beijing and then his change of mind about staying in the country has brought more international attention to his case than Beijing is comfortable with. That has raised the hackles of interference in domestic affairs. But Chen is not of great importance to central government in the greater scheme of things, and certainly of lesser importance than he has become outside the country, particularly to those in the U.S. who see his case providing political capital in an election year. Beijing just wants the matter done with, so it can get on with dealing with its bigger problems.

It has made the point that if Chen is to go into exile, it will be on Beijing’s terms, not Washington’s. That sets a certain deterrent to would-be copycats. This has hardly been a high point in the China-U.S. relationship, even as it has simultaneously highlighted the fragility and importance of that relationship. History, we suspect, will ultimately judge the Chen affair as no more than a footnote in the development of the relationship and of the rule of law in China.

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Trust But Verify

How fast is the fast deal struck between China and the U.S. over the departure of Chen Guangcheng from the U.S. embassy in Beijing? The are few precedents concerning previous visitors to American diplomatic outposts who have ‘left of their own volition’. The most recent one, Wang Lijun, disgraced Bo Xilai’s former police chief in Chongqing, is hardly a happy one. The circumstances surrounding Chen’s case are much different, though. For one, for all Chen’s international fame, he is little known inside China outside activist circles. His human rights activities, notably his exposure of forced abortions in Linyi in Shandong, challenged local rather than national politicians. His imprisonment and subsequent house arrest were prosecuted locally not nationally. He has not made any political demands on Beijing, beyond calling on it to investigate his treatment at the hands of local officials.

Chen’s flight to the U.S. embassy, where he had taken refuge for six days, was nonetheless an embarrassment and inconvenience to central government, especially coming as it did against the backdrop of the Bo affair and the always heightened security concerns of a leadership transition, and immediately ahead of a visit by the U.S. secretaries of state and Treasury, Hilary Clinton and Timothy Geithner. The later made it another and unasked-for test of the China-U.S. relationship. The foreign ministry was tart in its first public comment on the affair, demanding an apology from the Americans for interfering in domestic affairs. That despite the part the ministry would have played in the rapid diplomatic diffusing of the case. The Americans have issued no apology, saying just that they consider Chen’s an exceptional case. A pro-forma response to a perfunctory protest. Both sides save face.

Chen’s wish to stay in China rather than go in to exile made it easier to settle this incident quickly. What remains unclear is how credible are the guarantees the authorities have given to both Chen and the Americans that the activist can live freely with his family and attend law school (he is a self-trained lawyer) away from Shandong. U.S. ambassador Gary Locke publicly accompanied Chen from the embassy to Chaoyang Hospital, where Chen was to be reunited with his family and receive further treatment for a foot injury sustained during his escape from Linyi. It was a clear attempt to attract a domestic spotlight on Chen.

Both sides will keep a watchful eye on him. That is a considerably easier task for Chinese authorities than American diplomats. For as long as Chen keeps his head down and doesn’t become a national figure, there is no reason to believe that he won’t be left as alone as any other Chinese citizen, and will be as free to be as politically active in future as the circumstances at the time allow. But in the words of the old Russian proverb beloved of both Lenin and Ronald Reagan, trust but verify.

Update: The deal appears to be going pear-shaped already. U.S. press reports quote Chen saying he now wants to leave the country. He fears for the safety of his family, and that he only left the refuge of the U.S. embassy in the face of threats that his wife and children would forcibly returned to Shandong and beaten.

Beyond the human tragedy, if this is true, it would be a blow to the U.S.’s standing in China and in particular to that of the Obama administration at home and abroad.

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The Chen Case: A Inconvenient Test Of China-U.S. Relations

The flight of Chen Guangcheng from house arrest in Shandong to the refuge of the American embassy in Beijing comes at a highly inconvenient time for Sino-U.S. relations. U.S. Secretary of State, Hilary Clinton, and her counterpart at the U.S. Treasury, Timothy Geithner, are due in Beijing this week for what were routine bilateral talks. These will now be overshadowed by what is an embarrassment to Chinese authorities and a problem U.S. diplomats could do with out given all the other glowing embers of contention between the two countries. Clinton has advanced the dispatch of some of her sherpas in an effort to defuse the situation before she arrives. Her assistant secretary of state, Kurt Campbell, is already in Beijing, several days ahead of his planned arrival.

Both governments are staying mum on Chen’s case. The Americans haven’t officially acknowledged Chen is sheltering in their embassy. China’s foreign ministry spokesman says they have no information about Chen’s whereabouts. Whatever. With China’s leadership mired in the Bo Xilai affair and Amerca’s in a presidential election, both governments will want a quiet solution, but are unlikely to get it because of the domestic political pressures.

The Obama administration was criticized domestically for not granting Wang Lijun, Bo’s police chief in Chongqing, asylum when he went to the U.S. consulate in Chengdu to reveal that Bo’s wife Gu Kailai was implicated in the murder of British businessman Neil Heywood. To deny asylum to Chen, if he asks for it, a person whose case the Americans have repeatedly raised on human rights grounds, would open the Obama administration to charges by his Republican opponents of again being “soft on China”, just as they accuse him of being over trade, currency and other economic issues. The administration, which doesn’t have the luxury of being able to criticize from the campaign trail without having to deal with the fallout from “interfering in China’s domestic affairs”, has been trying to walk a tightrope between promoting human rights without that a getting in the way of working with Beijing on global and regional issues that affect U.S. national interests.

With China’s rise as a regional and economic power, the two countries’ national interests intersect ever more frequently–Syria, Iran, North Korea, South China Sea, Taiwan–to list some current points of tension. All are ones where nationalist voices can be raised strongly at any time, and amplified by domestic politics. Within China, it doesn’t take much for the conservatives in Beijing to resurrect the specter that Washington is exploiting Chinese domestic events to weaken or encircle the country. One reason that the diplomats on both sides want a quiet, face-saving resolution to the Chen affair is that both sets know they have bigger issues to fight over.

Older readers may remember the case of Fang Lizhi, who sheltered in the U.S. embassy in Beijing for more a year in the wake of Tiananmen in 1989. It was caustic to China-U.S. relations.  The relationship has matured but also become more complex since. Yet a diplomatic sweeping under the carpet of an inconvenient affair is not what the diplomats are likely to get.  Chen is going to be a stern test of the bigger relationship.

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China Half-Heartedly Falling In Behind Kim To Head World Bank

Kim Yong Jim, U.S. nominee for President of the World Bank, March 2012One way to look at Jim Yong Kim (left), the U.S.’s surprise nominee to be the next president of the World Bank, is that he represents a transition from the leadership of the multilateral development agency being a Washington sinecure to a merit-based selection from developing countries. That is how it seems to be being seen in Beijing. Kim’s nomination “demonstrated that [U.S. President Barack Obama] has begun to take heed of the demands from the developing world for an expanded role within the global institution,” Xinhua said in a commentary.

Kim, though a U.S. citizen, is Korean-born. Currently president of one of American’s elite Ivy League universities, Dartmouth College, he is a health professional with long experience in the developing world, including running the HIV/AIDS department at the World Health Organization. More importantly, he is neither a Washington nor Wall Street retread.

One reason for the post-World War II gentleman’s agreement between the U.S. and Europe that the former would get to put an American in as head the World Bank and the later a European as managing director of the IMF, was that the Bank needed to secure the confidence of Wall Street, then its primary supplier of capital. That world has changed. Washington’s gift of the Bank’s presidency, along with Europe’s of the IMF’s managing directorship, is a 20th century convenience but a 21st century anachronism.

Kim is one of three candidates. Nigeria’s finance minister, Ngozi Okonjo-Iweala, and Colombia’s former finance minister, Jose Antonio Ocampo, are the other two. Such is the voting structure of the Bank that it would take a broad-based European veto to block Kim. Even in the highly unlikely event of that happening, the U.S. could, in turn, veto either of the other two candidates. A new Bank president needs a supermajority of the Bank’s executive directors, 25 representatives of its member nations with voting power weighted in accordance to the capital they subscribe to the Bank.

Beijing has yet to tip its hand publicly. The decision it has to take is whether to get behind what looks to the winning horse, in the expectation that Kim may introduce further reform in the governance of the Bank from which China would be a beneficiary, perhaps the big winner, or to stand by one of the other two candidates in a show of developing-nation solidarity, though that would force it to make a choice between its friends in Africa and those in Latin America. We expect Beijing to go, along with the Europeans, with the first choice. The biggest hint in that direction came earlier this month from central bank governor Zhou Xiaochuan. He said that it wasn’t worth paying much attention to the selection of a new head of the Bank as the job had always gone to an American. Coverage in state media has been correspondingly light and scarcely more interested.

As others have pointed out, the World Bank matters less to China now than China does to the World Bank. It may also matter less to the world than China. The commentator and academic, Martin Jacques, captures the point succinctly: “in 2009 and 2010 the China Development Bank and the China Exim Bank lent more to the developing world than the World Bank”.

It is telling that Beijing didn’t put a candidate of its own forward, nor was one of its own, save perhaps for Zhou, much talked about even as an outside possibility. The prize Beijing has its eye on is the top job at the IMF.

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