Is Biden Visiting China or Playing the U.S. Debt Card?

At Chinese Vice President Xi Jinping’s invitation, Vice President Joe Biden went on an official visit to China from August 17 to 22. It was his first visit to China as Vice President. As the dark cloud of the American debt crisis hovered and the first battle of the U.S. presidential election was being fought, Biden’s various topics of discussion garnered much attention.

It can be seen that both media agencies and officials had high expectations for Biden’s visit. However, whether one considers Biden’s previous briefings or all the noise that the American government has been making, one can see that the fundamental goal behind all this is to ameliorate the credibility crisis between America and the rest of the world. The choice to visit China was clear because China is the largest foreign holder of American debt and the U.S. government sought to gain support for its next round of policies. Those who expect Sino-U.S. trade relations to improve, especially the issue of whether measures can be taken to improve the imbalanced structure of trade relations, should know this is impossible for Obama to accomplish.

The two parties fought the debt ceiling issue in Congress for an extended time, and from the start of the conflict to the final resolution of this ugly political farce, the American government’s credibility was called into question from all parts of the world. When the two parties of Congress were about to make a deal, Standard & Poor’s downgraded America’s credit rating, thus causing a new financial crisis scare around the world.

Actually, the Obama administration created a global public relations campaign as early as possible in order to prepare for this. Besides the Department of the Treasury and the Federal Reserve, Secretary of State Hillary Clinton also spoke confidently about the debt. On July 25 in Hong Kong, Clinton said she hoped the Chinese side would not worry, because America would not default. In truth, we have heard these promises before, but U.S. debt keeps increasing and the Federal Reserve continues to implement quantitative easing. As the saying goes, old ginger is spicier than younger ginger — in other words, experience counts. Considering Biden’s individual experience, he has more knowledge about China and has fewer negative qualities. Thus, he was a card that the Obama administration had to play in order to reduce negative impact.

However, from China’s perspective, even though it had to accept the losses that came from America’s debt being downgraded, it still had to respond with some political posturing. Earlier, Chinese officials hastened to formulate every feasible measure between the two countries concerning financial and monetary policy in order to decrease the financial deficit and appropriately deal with the debt issue. The Obama administration responded by reporting that its country’s finances were becoming more sustainable and it would honor its financial obligations. Then China responded in June by increasing the number of Treasury bonds. According to the statistics announced by the U.S. Department of Treasury on August 15, after increasing the amount of debt it held during April and May, it bought $5.7 billion more in Treasury bonds in the month of June. Currently, China holds $1.1655 trillion in U.S. debt and is still the largest holder of American debt.

From this perspective, it is quite clear that, since the Chinese foreign exchange reserves keeps increasing and this issue has not been completely resolved, purchasing U.S. Treasury bonds will be strongly affected by any fluctuation in U.S. domestic politics. Secondly, it is universally known that one of the most prominent issues affecting Sino-U.S. trade relations is the trade imbalance. Looking back, one can see that Sino-U.S. relations have been developing very rapidly. Bilateral trade increased from $20 billion in 1990 to $400 billion in 2010. In the first half of this year, Sino-U.S. bilateral trade already reached $206.44 billion, which is a year-on-year increase of 20.1 percent. It is just as former U.S. Secretary of State Warren Christopher said “…We strongly support China’s development as a secure, open, and successful nation that is taking its place as a world leader.”

However, when it comes to the trade balance, rather than depending on the U.S. government bonds to put dollars in the U.S. debt market, it would be better if America adjusted its technology market, specifically the threshold for technology transfer. This is what the Obama administration and even future administrations really need to do. It is undeniable that in the past few years, China’s total amount of high tech imports has been increasing. This has followed the adjustments of China’s foreign trade structure. However, it has been the main source of China’s trade surplus with the United States. According to the U.S. Department of Commerce, a total of $21.5 billion in high tech products were imported from America into China in 2010. Most of the products fall into five major areas: electronics and electrical machinery ($2.29 billion), aviation technology ($5.79 billion), information and communication technology ($4.04 billion), flexible manufacturing ($2.29 billion) and life sciences ($1.5 billion). In the first half of this year, the trends for high technology products imported from America into China remain unchanged; that is, products are still concentrated in five major areas. America’s high tech exports to China dropped this year, from $8.1 billion between January and May down to $7.6 billion for the same period this year. This was a result of the United States’ continuing its high tech export controls; this year’s U.S. high tech products only counted for 4.2 percent of China’s high tech imports in terms of U.S. dollars. China’s high tech imports totaled $180.2 billion.

In terms of the imbalance in Sino-U.S. trade, in the current situation the U.S. government strictly audits its high tech products, which means China is unable to buy the high tech products that it needs. Another effect is that China’s products are unilaterally imported and a large amount of U.S. dollars are ultimately forced to enter the low-yielding Treasury bond market. For this reason, if Obama really wants to resolve the imbalance in Sino-U.S. trade, he needs to make an issue of the high technology export policy.

Actually, the Obama administration has already become well aware of this matter. After entering office in 2008, he announced plans to greatly increase exports. But it appears Obama is pursuing a different scheme now. First he started selling new energy plans through the Secretary of Commerce, then he started pushing restructuring and rebuilding for America’s industry. Ultimately these double dealing methods are doomed to fail.

In light of this, many people have called for action, saying that if the American government continues to purposefully cause suffering, China could use its U.S. dollar reserves to limit this kind of behavior. In reality, this idea is not new.

Moreover, it is important to note that when Biden announced his visit to China, the U.S. Department of Defense made a revision to its policy of selling arms to Taiwan. The U.S. is going to upgrade the F-16A and F-16B fighter jets for Taiwan’s military. Clearly, there are domestic arms merchants who stand behind the U.S. government and its double-sided games. Most of these arms merchants are located in Texas. This information gives us a breakthrough which tells China how to utilize its U.S. dollars. Actually, as long as China prohibited all imports from enterprises located in Texas and simultaneously prohibited Chinese enterprises from giving one cent to Texas enterprises, the first ones to jump ship would be the arms merchants, and then the American government wouldn’t have the capital to continue playing this game. The key is that currently China does not dare to take a stand on this issue.

Therefore, after the crisis of the American debt, Biden came to visit China. The meaning of the visit is just to save a little face for the Obama administration and find some support. As for resolving economic and trade relations, when it comes to Obama, who is looking to be re-elected, honestly, it would be a lot to ask for.