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Obama's China policy takes shape
By Jing-dong Yuan

MONTEREY, California - United States Treasury Secretary Timothy Geithner ended his China trip last week on a positive note. His visit, which came on the heels of House speaker Nancy Pelosi and Secretary of State Hillary Clinton's visit in February, said a great deal about change and continuity in the Barack Obama administration's China policy.

A call for change was a hallmark of Obama's presidential campaign, but as president, and on China, his administration's handling of America's most important bilateral relationship has been marked by continuity. Engagement rather than confrontation captures of the essence of the approach and will guide Washington in developing "positive, cooperative and comprehensive" ties with Beijing.

The core initiatives of the bilateral dialogues and consultations launched during the second term of the George W Bush administration - the Senior Dialogue and the Strategic Economic

 

Dialogue - have been kept and elevated to a higher level. The US-China Strategic and Economic Dialogue, as it is now called, will be headed by secretaries Clinton and Geithner on the US side, and Vice Premier Wang Qishan and State Councilor Dai Bingguo on the Chinese side. The first meeting of this high-level dialogue will take place in Washington, DC in the last week of July.

But changes are also taking place. These are both in substance and in style. Gone are the days when US officials would lecture their Chinese counterparts on issues ranging from currency exchange rates to financial reforms in China. These days, discussions focus more on how, as the world's first- and third-largest economies accounting for combined global energy imports of over 50% and greenhouse emissions of over 30%, the US and China can work together to address the many challenges facing the world.

The Obama administration has emphasized common interests more than differences in its China policy. "We are all in this together" seems to have become a mantra of US officials from Pelosi to Geithner. Clean energy, climate change and economic stimulus, not human rights and currency manipulation, now top Washington's China policy agenda.

There are good reasons for this shift in focus. The Obama administration has inherited perhaps the most severe economic crisis since the global recession of the 1930s. Dealing with growing unemployment, and massive deficit spending, the administration will need to closely coordinate its economic recovery policy with other major international powers, particularly China.

Major adjustments in economic policies are called for, not only to weather the current crisis, but also to lay solid foundations for sustainable growth. For the US, this means it can no longer spend beyond its means. For China, this requires a shift from export-oriented towards a domestic consumption-based economy. It will not be easy for either country.

China's phenomenal economic growth over the past two decades has been sustained by an external market able to absorb its products. This dependence on exports has already cost the country over 20 million lost jobs due to falling demand for Chinese-made goods caused by the financial crisis. Beijing has responded by injecting over US$600 billion in stimulus spending, but this is yet to have had significant impact.

Given the inadequacy of the country's social safety net, the potential of its domestic consumer base remains limited, making the shift from exports to domestic consumption all the more difficult. Introducing and improving retirement pensions, public health care, and access to credit would enable Chinese households to spend more and save less.

But the onus is equally on the US side to undertake serious reform, including the restoration of its fiscal order through a more balanced mix of resources and expenditure. Out-of-control spending and growing deficits have already worried Beijing as it contemplates the security of its huge holding of US debts, including $768 billion in Treasury securities. Chinese officials from Premier Wen Jiabao to central bank Governor Zhou Xiaochuan have in recent months have expressed serious concerns over the debt.

Beijing has every incentive to reduce the risk of this overexposure to the greenback, but it is unlikely that America's largest creditor is going to pull the plug any time soon. The collateral damage of such a drastic move would be extremely high and China continues to rely on US markets and the value of US dollars to minimize further job loss and devaluation of its assets.

Economic issues aside, Beijing and Washington also share important common interests in dealing with issues ranging from the proliferation of weapons of mass destruction to growing international maritime piracy. China and the US have cooperated to address the North Korean and Iranian nuclear issues and increasingly the Obama administration is soliciting Chinese assistance for the conflicts in Afghanistan and Pakistan.

Unlike its immediate predecessors, the Obama administration begins its term anchored in a positive and cooperative relationship with China. But that does not mean differences do not exist or should be brushed aside. Frictions are bound to arise and disputes will be part of their interactions.

Dr Jing-dong Yuan is director of East Asia Non-proliferation Program at the James Martin Center for Non-proliferation Studies, and an associate professor of International Policy Studies at the Monterey Institute of International Studies.

via atimes.com