Page 1 of 2 Courtship and censure in US's China policy
By Benjamin A Shobert
Several years ago, while attending a conference on United States-China business
relations, I heard a well-respected leader in the field finish his presentation
and take questions from the audience. Perhaps the most interesting question was
also the simplest: "What could happen in the United States that would shift our
relationship with China?" With only the slightest of pauses, his answer was "a
long and protracted recession in the US".
The exchange was certainly interesting that particular moment, when the idea of
such an event seemed distant and easy to trivialize. Today, in the midst of
precisely that situation, his comments are difficult to ignore.
The recent release of the annual 2009 congressional report from
the US-China Economic and Security Review Commission (USCC), the product of a
congressional committee long known for its suspicious view of China's
modernization and military growth, reinforces the idea that US-China relations
are vulnerable to any number of things, but the state of the US economy remains
the predominant threat. Many of the committee's comments are not surprising,
especially for those who have followed the growth of its role in policymaking
over the past several years. Ongoing concerns over Taiwan echo throughout the
report, while at the same time acknowledging the small gains that have
transpired in 2009 regarding travel restrictions between China and Taiwan.
Similarly, the committee continues to push for greater transparency from the
Chinese government regarding its objectives for the burgeoning military budgets
coming from Beijing. Perhaps because 2009 was a year with its share of economic
conflict, the most recent USCC report does a remarkably good job at casting a
more balanced light on the growth of the Chinese military, and its potential to
contribute to military conflict. The report goes so far as to say that " ...
the expansion of China's military and security activities abroad are more
evolutionary than revolutionary in nature. Although the PLA [People's
Liberation Army] is operating more frequently abroad, it should not yet be
considered a global military or a military with global reach."
Even more surprising was the report's contention that "The Chinese military's
more international orientation is not a fundamentally negative development. A
more activist PLA could in some circumstances provide a 'public good' by
contributing more to global stability." Given the many criticisms the report
usually has for China, these points suggest that even the most hawkish forces
in Washington are being forced to recognize that they will have to co-exist
with Chinese power, and that doing so need not be detrimental to peace or
prosperity.
The report to congress makes a total of 42 recommendations, of which 10 are
deemed to be "key". Of the 10, four are economic: push for more aggressive
World Trade Organization trade remedies; legislate in ways that force the yuan
to "become flexible"; determine how the Chinese value added tax (VAT) impacts
on US manufacturers; report back on how Chinese subsidies on clean energy are
impacting US companies in this field.
Five are military: increase funding for "anti-access" technologies to the US
Department of Defense; better respond to Chinese espionage; make sure
prevention [measures] from Chinese computer attacks are properly funded;
suggest that China begin to "draw down" its forces positioned against Taiwan;
review how potential dual-use technologies are making their way from Hong Kong
to China.
Only one of the 10 key recommendations is focused on human rights, that
congress should better track the role of US companies whose technologies or
services might enable the People's Republic of China (PRC) to censor the
Internet from its own people.
While many of these points are not necessarily new, a handful of interesting
and challenging narratives do emerge. The most problematic is the idea,
fostered by a number of witnesses who testified during the year to the USCC,
that China is partly to blame for the US's current economic woes.
The congressional report goes so far as to state, "The policies that China
adopted generated a huge flow of liquidity - or money that can be easily lent
to borrowers - into US markets. This excess liquidity created perverse
incentives in the United States that encouraged banks to make risky loans to US
households, which in turn grew even more indebted."
As political dynamite goes, this kind of statement could not be more troubling,
not least because it potentially mistakes context for cause. During a period
when US politicians are not looking to discriminate between the two, blame
assignment of this nature does great damage not only to US-China relations, but
to a meaningful and honest review of what the US needs to do differently to
better manage its fiscal house.
Admittedly, the USCC 2009 report does at points find some balance on this
topic, possibly said best when the committee reports, "By continuing to consume
more than is produced, the United States must continue to borrow. Meanwhile,
China continues to add manufacturing capacity, producing more than it can
consume domestically."
While testifying to the committee, Stephen Roach, author of The Next Asia
and currently based in Hong Kong as chairman of Morgan Stanley's Asia office,
took a dim view of those who would assign blame for the US's economic problems
on China: "... we made dumb mistakes that were reinforced by, I think, poor
policies and poor behavior across our economy, from politicians to central
banks to regulators to Wall Street to Main Street, and I think it is really
incorrect to even think that the Chinese are responsible for those poor
decisions." Observers of the USCC will note that the economic conditions of the
past 18 months have made it more difficult for testimony like that of Roach to
be heard, as this year's report and its key recommendations suggest.
Yes, the context within which the US economy has gone into recession is one
where high savings in China have created pools of capital for investment, some
of which has gone overseas to create excess liquidity, some of which has caused
severe overcapacity in key manufacturing industries globally.
But to say that this excess liquidity is the cause of the US's problems is to
look past the enormous differences and responsibilities which should
characterize both countries. It seems a profound statement about the US's own
responsibility in this affair to put much blame on China. One country has been
an economic powerhouse for over 50 years, with a financial and governing system
so strong that its currency has become the denomination of global reserves, and
its political system the envy of many.
The other is a country dealing with very recent trauma, with severe problems in
feeding itself, providing social services to its citizenry, defending its
borders, and frequent bouts of famine coupled to severe economic contraction.
That the latter would find its footing and begin the process of political
reformation, only to find enough success to even have a pool of money to invest
is a remarkable feat.
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