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Stormy weather ahead for Sino-US relations?

Updated On: May 29, 2007

The Sino-US strategic economic dialogue was supposed to resolve issues. However, critics of the dialogue seem to suggest that the opposite was achieved.

Anti-China forces in the US have a number of grievances with the dialogue. Those wishing for Chinese promises to devalue the Chinese yuan further did not get what they want. Mr. Paulson, a former Goldman Sachs executive who negotiated many big deals in China tried to woo Ms Wu Yi over dinner at his home on the issue of Yuan revaluation but was unsuccessful.

And. on the opposite side of the dialogue, Chinese negotiators are increasingly impatient with those in Washington for politicizing economic tensions and threatening China with pressing forward the WTO suits as well as increasing (not subsiding) pressures for yuan revaluation. China warned that it will not sit idly by the sidelines if the US carries on with anti-China trade sanctions before the World Trade Organization for copyright piracy and barriers to US music, films and books.

Vice Premier Wu Yi said China would "fight to the end" the two WTO suits. This "will surely have serious impact" on bilateral intellectual property rights cooperation and "damage the already established bilateral cooperative ties on market access for publications," Wu said. "Any attempt to impose pressure on the (yuan) for its considerable revaluation cannot help at all and could probably injure the interests of the two countries and the public," she said.

Behind the US hostilities towards China are perceptions of a softening labour market in the US which have the Democrat-controlled Senate up in arms against China. These politicians are looking to draw blood through trade sanctions, including a possible 20 percent across-the-board tariff on Chinese goods and proposals to raise the Chinese yuan by 40 percent.

To be fair, some accords were reached at this dialogue. Both countries plan to double daily passenger flights and the US got a wonderful economic gift when the Chinese granted American carriers “unfettered access” for cargo. Both countries intend to develop clean coal-burning technologies and China also agreed to allow US financial firms to expand operations in the country. 

But complicating the negotiations was a badly-timed Pentagon report that warned of the militarization of China, an expanding Chinese military budget and Beijing’s ballistic missiles that could hit the US. The Pentagon was also concerned about Chinese plans pre-emptive strikes in the East Asian region. US Defense Secretary Robert Gates said the report "paints a picture of a country that is devoting substantial resources to the military and developing ... some very sophisticated capabilities."

The report noted that China is developing capabilities that "will increase Beijing's options for military coercion to press diplomatic advantage, advance interests or resolve disputes.” "New air- and ground-launched cruise missiles that could perform nuclear missions will similarly improve the survivability and flexibility of China's nuclear forces," it adds. A new fleet of Jin submarines would make China a formidable naval power.

Sensing hostility from the US over its newfound prowess, China is also fed up with US opposition to its participation in US-led international space efforts. Because of this, China has decided to set up its own space club, led by Beijing. The club is a who’s who that would probably worry the US.  Besides launching a satellite for oil-rich Nigeria (built and launched on Chinese loans), China is doing the same for Venezuela and is developing an earth observation satellite system with Bangladesh, Indonesia, Iran, Mongolia, Pakistan, Peru and Thailand and it has organized a satellite association in Asia. Next in line are Chinese plans for a Mars probe, putting an astronaut on the moon and competing with the US in the $100 billion commercial satellite industry.

In the next few years, China could launch as many as 100 satellites for broadcasting TV signals to rural areas, create a digital navigational network for mapping and weather monitoring. Also in the works is China’s own Global Positioning System, or G.P.S. to compete with the US network. All these have raised American suspicions with Washington taking measures to stop Chinese rise in space power, even stopping Chinese scientists from attending space conferences in America.

Ultimately, however, China is no longer a weak economic player like in the past. Even anti-China forces have to take into consideration that the PRC is the paymaster for a US that continues to reject prudent savings and addicted to spending, hence requiring money from countries like China to fuel its consumption.  Antagonizing China should be the last thing on the minds of Washington policy makers, especially since two-thirds of China's 1.2 trillion dollar reserves are dollar-denominated, including 420 billion in US Treasury bills.

At the same time, however, China is also aware that the US market is the very entity that is driving Chinese economic growth. If US consumers and manufacturers decide to shift their penchant and appetite for goods from elsewhere (India?), the Chinese economic boom could be affected. This fear is very real since the diversion of Japanese investments away from China to Vietnam due reportedly to anti-Japan demonstrations in China had prompted so much concern amongst Chinese leaders that it was said to be one of the driving forces behind Premier Wen’s visit to Japan to repair relations. In this aspect, the US is a much bigger and far more important trade partner with China in comparison with Japan.  (28 May 07)

Sources:

Stormy China-US ties seen amid trade tensions (Channelnewsasia, 27 May 2007)

Rising US concern over China's missile plans (Straits Times, 26 May 2007)

Military pumps up China's influence, Pentagon says (CNN, 25 May 2007)

China Talks Don’t Resolve Major Issues (NY Times, 24 May 2007)

Snubbed by U.S.China Finds New Space Partners (NY Times, 24 May 2007)

The language of Chinese soft power in the US (Asia Times, 24 May 2007)