Insult upon insult does not engender trust

PUBLISHED : Sunday, 23 January, 2011, 12:00am
UPDATED : Sunday, 23 January, 2011, 12:00am

Feel-good factor replaces mutual mistrust

SCMP headline January 21

Replace it for two weeks at most is my guess. The natural state of relations between China and the United States is one of apprehensive wariness. The only role of feel-good diplomacy between them lies in cultural exchanges.

President Hu Jintao's conduct in Washington certainly seemed to say so, never a grin or a spontaneous gesture, no departure in public from that Mona Lisa straight ahead inscrutable look and I wonder if there was any departure from it in private meetings. You would almost think he was a flesh-coloured handshaking machine.

But it was a big occasion for him obviously. Governments that shun the ballot box tend to seek their legitimacy in international recognition. When the president of the United States rolls out the red carpet for another head of state, then surely he accords that head of state as much legitimacy as his own, does he not?

Thus the rule in these matters - the less democratic the visitor the more formality to please him. They understand that game in Washington and they certainly played it over the past week - saluting soldiery with gleaming bayonets at every turn for Hu. The message to the folks back home was unmistakable - I'm boss and don't you forget it.

But this still leaves the abiding mistrust untouched and angry congressmen haven't changed their line. China cheats, they say. It maintains a big trade surplus with the US by continuing to undervalue the yuan and it thus steals jobs from US workers.

The truth is that jobs may have been taken from US workers but by US corporations. The China connection is only that American industry uses China to do it.

The significant statistic here is that more than half of China's exports come from foreign-invested corporations. The figures are not good enough to tell you how high it is for consumer products but more than 80 per cent would be a safe guess. This predominantly represents American companies or affiliates making goods for American consumers and choosing to do so in China because it is where they can find a sufficiently large workforce available at very low wages.

China's big trade surplus with the US is therefore more of a surplus held by American companies with American consumers. The China angle is incidental. What is more, much of that surplus really has no China angle at all. As my colleague Tom Holland recently demonstrated in the Monitor column, only a minute proportion of an Apple i-Phone's cost is attributable to China after accounting for imports of critical components sourced from South Korea, Germany and other countries. China is used only for final assembly. Yet US customs treats the full import cost of that phone as an import from China when calculating the US trade balance with China.

The chart shows the result of this distorted way of tallying trade figures. The red line on top shows you China's trade surplus with the US, now running at US$270 billion a year. The blue line at the bottom shows you China's trade balance with the rest of the world, a deficit running at US$80 billion a year.

These are admittedly not Beijing's figures but then Beijing does indeed cheat, in this case by treating much of its trade surplus as a surplus with Hong Kong because the goods are shipped through Hong Kong. Don't be fooled. My chart is closer to the truth.

What it says is that China suffers a double insult here. It suffers one first in having its people exploited by foreigners, mostly American, to work for very low wages at mind-numbing drudgery in foreign-owned manufacturing plants. It is foreigners who derive the benefits, both in greater profits for foreign corporations and lower prices for foreign consumers.

China then also suffers the insult of being told it has an unfair trade surplus with the US when that trade surplus is more than China's alone and when very little of the advantage of it accrues to Chinese people.

But while I don't expect US congressmen to accept this any time soon, I wonder whether even Hu recognises the truth of what is happening in this trade relationship.

It doesn't reflect well on him. He connives at the foreign exploitation of his own people.

There may be excuses for it but there should also be recognition of it. A big show in Washington just hides it more.