Obama to Borrow China’s Wealth, Clout in Effort to Steady World
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By Indira A.R. Lakshmanan
Dec. 9 (Bloomberg) -- Thirty years ago this month, President Jimmy Carter held secret negotiations to establish formal diplomatic ties with a poor, insular communist China. President-elect Barack Obama will inherit a relationship with a China whose wealth and influence are essential to rescuing the world economy.
Resolving almost any international problem now -- from reducing North Korea’s potential nuclear threat to slowing global warming -- requires Beijing’s cooperation. The financial crisis also underscores China’s importance: Its $1.9 trillion in foreign reserves will be indispensable in helping to avert a global economic meltdown.
While this means China will likely get immediate attention from Obama, the new president probably won’t reorient U.S. policy toward the world’s fourth-largest economy.
Factory closures and job losses in Michigan and China’s Guangdong province “vividly remind us how interdependent our countries are now,” says Susan Shirk, a former deputy assistant secretary of state for China who has advised both Obama and Hillary Clinton his choice for secretary of state. “Although this could lead to conflict and friction, it also gives the U.S. a strong incentive to cooperate with China.”
Every president since Carter has come to office lambasting Beijing about espionage, unfair trade practices, violations of human rights and threats to Taiwan -- before being compelled to work with the Chinese government on common interests.
Less Confrontation
Obama may be the first to start out less confrontationally. During George W. Bush’s presidency, the two countries have forged unprecedented lines of communication, forming working groups on Africa and Latin America and holding economic summits like one last week with Treasury Secretary Henry Paulson.
The current administration “has handled the U.S.-China relationship perhaps better than any bilateral relationship of the last seven years,” says Ken Lieberthal, a former national security adviser on Asia under President Bill Clinton who advised Hillary Clinton, 61, and then Obama, 47, during the presidential campaign.
Even so, “mutual distrust about both sides’ intentions has grown,” says Lieberthal, 65, a visiting scholar at the Brookings Institution in Washington.
Thwart Growth
On a recent trip to Beijing, he says he discovered that many Chinese -- officials and ordinary citizens -- believe the U.S. purposely triggered a global financial crisis to thwart China’s growth. Likewise, many Americans assume a stronger China would marginalize the U.S.
“Each side hedges against what they fear the other might try to do,” Lieberthal says.
As economic conditions worsen, both countries are under pressure at home to protect their domestic markets. Obama spoke out during the campaign against what he called unfair trade practices and currency manipulation, which has left Chinese policy makers nervous about his intentions. China, meanwhile, is shielding its own economy by slowing the appreciation of the yuan against the U.S. dollar and giving Chinese exporters a larger tax rebate.
With the U.S. now officially in a recession, China holds more cards than it did even a few months ago. Washington is more reliant on Beijing -- the largest holder of U.S. Treasuries -- to buy more government securities to finance deficit spending. China’s massive trade surplus has enabled it to accumulate more foreign-currency reserves than any other nation, according to Bloomberg data.
‘A Lot of Cash’
“It’s one of the few players in the world, besides the Saudis, who is sitting on a lot of cash and can help save the international financial system,” says Victor Shih, author of “Factions and Finance in China.”
Some fear America’s reliance on China’s money means the White House will bite its tongue when the country acts against U.S. interests or values.
“If there were not a global recession and crisis, I would expect the Obama administration to take a stronger stand on Tibet and human rights,” says Shih, a professor at Northwestern University near Chicago.
The upside of interdependence is that the two nations should be less likely now to take punitive measures against each other, says Nicholas Lardy, an economist who specializes in China at the Peterson Institute for International Economics in Washington.
No Incentive
There’s no incentive for China to stop buying U.S. securities; it needs a safe investment for dollar reserves, and its growth depends on the health of the U.S. economy. Congress also may hesitate before demanding trade barriers against a country that’s the main source of cheap goods for budget- conscious consumers.
The Communist Party’s legitimacy rests on its ability to deliver rising standards of living, without which the government’s grip on power becomes tenuous, China watchers say. So the country’s leaders have reason to worry about an economic slowdown that is pushing growth below the estimated 8 percent a year economists say is needed to create enough jobs for its citizens. Authorities are also anxious about rising discontent and daily protests over corruption, unemployment, housing and tainted food.
Obama should have a contingency plan for “what we would do if there’s a major collapse of the political order,” says Roderick MacFarquhar, a China scholar at Harvard University in Cambridge, Massachusetts.
China-Savvy Advisers
The president-elect will be able to turn for help to the China-savvy individuals he has brought into his circle. Timothy Geithner, 47, Obama’s choice for Treasury secretary, studied Chinese and has lived in China. His transition team includes Jeffrey Bader, a China specialist with a 27-year career in government that spans trade and national security.
Among the possible candidates for ambassador are John L. Thornton, a former chairman of Goldman Sachs Asia who has been a professor in Beijing; Richard Holbrooke, 67, who dealt with China as Clinton’s United Nations ambassador; and Shirk, 63, a visiting fellow at the Asia Society in New York.
Lieberthal expects Obama’s administration will engage Beijing in what he describes as “critical transnational issues of the 21st century.”
Interdependence will work to both countries’ advantage, Shirk says, “if it motivates us to do our best to cooperate rather than taking potshots.”
