U.S. Softens But Not To Flatter China

The first round of the U.S.-China Strategic and Economic Dialogue came to an end on 28 July in Washington, D.C. This two-day dialogue achieved its goal of making people focus on the progress already made by the two countries in energy, the environment and climate change. The two sides drafted a memorandum that focuses on guiding the two countries toward long-term cooperation in energy preservation, emissions reduction, a low-carbon economy and responding to climate change.

Vice-Premier Wang Qishan views economic stimulus as the key task facing both the U.S. and China. As such, both China and the U.S. agreed to continue promoting economic recovery while resisting protectionist policies.

The U.S. adopted an unprecedented, positive and pragmatic attitude throughout the discussions. Squarely placing China’s concerns over its own interests, the U.S. properly evaluated the key role China will play in the recovery of the world economy. In this sense, particularly noteworthy is how the U.S. changed its critical stance and pressure tactics. No longer caught up in the Renminbi currency issue, discussion points were limited to finding mutually beneficial strategies for economic recovery, energy, the environment and terrorism. This high-level emphasis on China-U.S. relations and new U.S. approach to such relations embody every aspect of both overt and covert details.

The clear change in the attitude and position of the U.S. is not, as many people have suggested, designed to purposefully destroy China via excessive praise, nor by using a positive attitude to change the flow of benefits. Instead, this kind of passivity and cooperation reflects the current and future roles of China and the U.S. within the global financial system. China-U.S. relations involve dialogue not only between the world’s largest developing country and the world’s largest developed country, but also between the world’s largest debtor nation and the world’s largest creditor nation. It is also a dialogue between the originator of the international economic crisis and the forerunner of global economic recovery.

These are key dialogues; however, they can only be considered part of a long-term, slow-moving process. In terms of reaching a consensus, this first round only serves to verify that China and the U.S. have long maintained a strategic economic relationship. No plan has been devised for a feasible solution. During such a weighty process, the imbalance of the world economy is embodied in the relationship between the U.S. and China. White House National Economic Chairperson Lawrence Summers used “the balance of nuclear terrorism” to describe a new era of China-U.S. relations. China’s foreign exchange reserves exceed US$2 trillion and close to two-thirds consist of U.S. assets; principally, the U.S. national debt. China has lent the majority of its assets to the U.S. government, so it goes without saying that China is facing a risk. However, if China dumped its U.S. assets, their value would spiral rapidly and China would suffer a great loss. Therefore, the U.S. must simultaneously attempt to maintain the stability of the dollar, continue lending to other countries and alleviate China’s concerns.

The first round of dialogues has clearly not produced a distinct timetable nor course of action to resolve the imbalance between the U.S. and China. The issue of the security of China's investments in U.S. assets is an inevitable in such discussions. However, the U.S. is once again making only verbal promises. When we clearly expressed our concern for the security of the U.S. national debt, Secretary of Treasury Timothy Geithner reiterated the U.S. intention to control the printing of new money, inflation and the financial deficit and to raise savings rates.

However, everyone knows that talk is cheap. Adjusting the global imbalance is, necessarily, a gradual process and the China-U.S. imbalance will only intensify. Objectively speaking, there is no plan to work hard now to enjoy carefree living in the future. The only way forward is by addressing the foundation of China-U.S. strategic interests, continuing to maintain dialogue and aiming for gradual relief.

In order to restructure the foundation of China-U.S. dialogue, Obama cited Menicus during the opening ceremony of the dialogue, saying, “there are the footpaths along the hills. If suddenly they be used, they become roads; and if as suddenly they are not used, the wild grass fills them up.” However, the meaning of these words does not adequately summarize the atmosphere of the China-U.S. dialogue. China and the U.S. will not only need to communicate diligently in order not to allow the path of cooperation to “fill up with wild grass,” but will also need to emphasize the exchange of courtesies and mutual benefits. It is obvious that one key achievement of the first round of the China-U.S. Strategic and Economic Dialogue, though only a beginning, was the establishment of a new model for dialogue and a new framework for cooperation.