More confident China confronts US in latest talks
Five years and one financial crisis since the United States and China commenced regular high-level economic talks, fast-growing Beijing might have the upper hand this week in the latest round of discussions between the world’s two biggest economies.
China faces threats of penalties against goods shipped to its largest foreign market unless it does more to end what US manufacturers say
are unfair trade practices, including currency manipulation, that have cost American jobs.At the same time, America’s biggest foreign creditor wants assurances that its $1.2 trillion in US Treasury holdings are safe despite uncertainty in Washington over how much money the US can borrow to pay its bills. If Congress fails to increase that borrowing limit before August, that probably would send interest rates soaring and reduce the value of those Chinese investments.
While analysts don’t foresee major breakthroughs at the talks Monday and Tuesday, China’s expanding economic might will give it greater leverage now.
”The focus has shifted to making methodical if slow progress,” possibly reflecting a maturing relationship between the two nations, said Eswar Prasad, a China expert at Cornell University.
Leading the Obama administration’s delegation at the Strategic and Economic Dialogue are Treasury Secretary Timothy Geithner and Secretary of State Hillary Rodham Clinton. Federal Reserve Chairman Ben Bernanke and officials from 16 federal agencies are attending, too.
The Chinese team is headed by Vice Premier Wang Qishan, a top economic policymaker, and includes officials from 20 government agencies.
The talks began during the Bush administration in 2006. Under President Barack Obama, they have broadened to cover foreign policy as well.
The main US economic goal hasn’t changed: prodding China to move faster to let its currency rise in value against the dollar. That would make US exports cheaper in China and Chinese products more expensive in the United States. It also would help narrow America’s trade deficit with China, its largest with any country.
When the talks started, Treasury Secretary Henry Paulson, a former head of Goldman Sachs, lectured Chinese officials on how much better their economy would perform if they eased controls on their currency and financial markets.
But the Chinese emerged from the global financial crisis in better shape than other economic powers, largely because of their highly regulated markets. In doing so, and in growing far faster than the US, Beijing has gained economic influence.
”The global financial crisis changed the dynamic of the relationship substantially,” said Nicholas Lardy, a China expert at the Peterson Institute of International Economics. ”It increased China’s confidence on economic issues.”
While Geithner said last week that the US would press China to accelerate efforts to revalue its currency, the yuan, he also sounded a conciliatory tone. He noted that the yuan has risen in value by 5 per cent since last June, and even faster once inflation was taken into account.
Geithner said it was encouraging that Beijing was starting to endorse the US view that a faster appreciation of the yuan would help China choke off inflation, which the country’s escalating growth has stoked.
A softer approach on China’s currency wouldn’t seem to please American manufacturers. They contend that China’s currency is undervalued by as much as 40 per cent and they want Congress to approve economic penalties if Beijing doesn’t move faster.
The US trade deficit with China last year was a record $273 billion, one-fifth more than in 2009. The administration is considering filing new trade cases against Chinese practices that US companies contend are unfair.
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