Talks will test sinews of Sino-US relations

PUBLISHED : Thursday, 14 December, 2006, 12:00am
UPDATED : Thursday, 14 December, 2006, 12:00am

This week's forum brings together two world powers whose fates are increasingly intertwined

US concerns about human rights on the mainland and China's annual struggle to secure most-favoured-nation trading status dominated Sino-US relations in the 1990s, with Beijing regularly on the defensive.

Nowadays, most analysts agree that the United States, the world's most powerful economy, and China, its fourth largest one, are interdependent, although they are divided on the question of who needs whom most.

Susan Shirk, formerly the US State Department's senior diplomat in charge of China affairs, said China still needs the US more, despite its recent rapid rise.

Professor Shirk, now director of the University of California Institute on Global Conflict and Co-operation, said: 'Economically, China and the US depend on each other, but China needs the US more than the US needs China.

'In non-proliferation and diplomacy, the US is co-ordinating well with China so that as it expands its influence, it works in concert with American efforts, not at cross purposes with them.'

However, Jin Canrong , a leading mainland-based expert on American affairs, says the US needs China more than Beijing needs Washington.

'The past decade has seen the rising national strength and international status of China and declining US influence due to its mishandling of international affairs such as Iraq,' said Professor Jin, vice-dean of Renmin University's School of International Relations.

He said the US now increasingly relies on China as an interlocutor with rogue regimes like North Korea.

This week's first top-level economic talks between the two powers illustrates the significance of their economic ties to each other and the global economy, analysts said.

US Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke will lead the US team to Beijing today for two days of talks covering a wide range of economic issues.

In addition to Mr Paulson, the American team will include four other members of US President George W. Bush's cabinet - Commerce Secretary Carlos Gutierrez, Labour Secretary Elaine Chao, Energy Secretary Samuel Bodman and Health and Human Services Secretary Mike Leavitt. Two other officials with cabinet rank, US Trade Representative Susan Schwab and Stephen Johnson, the head of the Environmental Protection Administration, will also make the trip.

The new high-level talks, dubbed the Strategic Economic Dialogue, were launched by President Hu Jintao and Mr Bush in September as a forum for the two nations to discuss ways to work together to enhance the bilateral economic relationship.

Professor Jin said the size and stature of Mr Paulson's mission was calculated to impress on the world, as well as its hosts and critics back home, just how serious Washington was about re-engineering bilateral relations.

Mr Bush was hoping that a negotiating team crammed with administration luminaries could produce better results than previous efforts in persuading China to help restrain a burgeoning US-China trade gap.

Huang Yiping, chief Asia economist with Citigroup, said both countries had a responsibility to assure healthy and continued global economic growth.

'The economic relations between the world's largest economy and its fourth largest, but fastest growing, major one have meaning not only to each other but to the world as well,' Mr Huang said.

China's rapidly growing trade surplus and foreign reserves and the growing US fiscal and trade deficits represent the most severe imbalances in today's global economy.

Jonathan Anderson, chief economist with UBS's Singapore-based Asia research unit, said America's bilateral trade deficit with China and the mainland's burgeoning trade surplus with the world at large would top the agenda this week.

American critics and manufacturers argue that the yuan is substantially undervalued and a major cause of a bilateral trade deficit on track to surpass last year's US$202 billion.

But Mei Xinyu , from the Ministry of Commerce's Research Institute, said it was unrealistic to expect a reverse in the trend in the short term.

'China's trade surplus with the United States will continue to rise,' he predicted.

Beijing is also unlikely to bend to US pressure to allow a dramatic appreciation of the yuan, because of fears that such a move would damage China's export-oriented industrial base and its national economic safety.

Market openness is an important target of US policy towards China, with US officials arguing that it is the best approach to make China fully merge with the international economic system.

'China has done a lot in this regard in the past five years,' Mr Huang said.

'And it still takes time to solve all these problems.'

That is why Mr Paulson has repeatedly stressed that the US needs to have patience.

Professor Jin said Beijing was more than willing to co-operate with Washington in economic areas because the leadership also saw it as imperative for China to move forward with economic globalisation.

Beijing is also concerned about the newly elected US Congress, in which critics of China now seem destined to occupy senior positions. Charles Rangel, tipped to become chairman of the US House of Representatives' budgetary committee, has already warned that America must 'take on' China over what he claims to be unfair trade practices.

The Chinese leadership also fears that their old friend Mr Paulson is under intense pressure from the US Congress to deliver results.

'Beijing will use the forum as a damage-limitation exercise,' Professor Jin said. 'The Chinese are clearly determined to launch a pre-emptive strike well before demands for trade protectionism intensify.'

China may offer some goodwill gestures by easing financial service entry barriers, tightening intellectual property rights protection and allowing a faster pace of yuan appreciation next year.

But analysts say the strategic economic dialogue was more concerned about major issues than immediate policy adjustments.

'The strategic dialogue is a platform that will only result in long-term achievements, and will not be nimble enough to handle many of the short-term issues,' Mr Huang said.

Professor Jin said the significance of the forum will be to enable both sides to understand the bottom line of each other's major national interests and real intentions, so as to prevent challenges or damage to the opposite side's core national interests and prevent conflicts through misjudgments.

The fundamental change in today's Sino-US relations is that even Capitol Hill's harshest China critics, such as Nancy Pelosi, who is expected to become House speaker, know well that China has become too powerful to be contained.