China, U.S.: Strategic and Economic Summit Ends

I think you will enjoy this intelligence report from STRATFOR.

The U.S.-China Strategic and Economic Dialogue (S&ED) concluded May 25, with U.S. Secretary of State Hillary Clinton emphasizing that the talks were “productive,” and particular progress was made discussing clean energy and environmental matters, but that Beijing and Washington remain concerned about their persistent economic disagreements. Still, Clinton said relations were back on a “positive track” when contrasted with higher tensions earlier in the year.

While the S&ED is mostly a talk shop, it provides a snapshot of the current status of relations. The latest picture is one of unresolved economic disputes, with both sides making gestures of compromise, and attempts to carefully manage divergent strategic interests.

On the economic track, the United States focused on American exports and business access to the Chinese market. Signaling a potentially major concession, Washington announced, coinciding with the talks, that it would loosen restrictions on exports of high technology products to China. Yet the Chinese response was skeptical — officials asked for more details and questioned whether a “real” loosening of restrictions was in the works. In other words, the United States has given no details, and the Chinese have yet to accept it as a concession or respond with a concession of their own — although Beijing has signaled a willingness to revise its widely criticized indigenous innovation policy, which benefits homegrown technologies at the expense of foreign (in this case American) producers.

There is every reason to be skeptical about the U.S. offer. Washington’s point of view has previously been that allowing China to buy more sophisticated goods is dangerous, unless China can demonstrate greater protection of intellectual property and other reforms. Otherwise, Chinese manufacturers could import top-of-the-line U.S. goods, copy them, and export them to global markets with the advantage of an undervalued currency to boot, driving U.S. manufacturers out of business. This fear is quite aside from the U.S. concern about supplying China with technology that could enhance its military capabilities. Since none of these factors have changed, it would be surprising if the United States suddenly offered to cut high-tech export restrictions drastically without quid pro quo. Thus, what remains to be seen is how far Washington is willing to compromise and what Beijing is willing to give in return.

Meanwhile, one of the most important economic disputes remains in limbo: the two sides remained relatively quiet on China’s fixed exchange rate — Chinese President Hu Jintao reiterated the Chinese line that currency reform would “continue” at China’s initiation, and only gradually, while central bank governor Zhou Xiaochuan said the two sides discussed how Europe’s debt crisis had affected the yuan’s exchange rate. The Americans chose not to dwell on the issue, and U.S. Treasury Secretary Timothy Geithner repeated his standard claim that China will allow the yuan to appreciate for its own reasons, on its own time.

More notable developments occurred on the strategic track regarding two pressing international concerns: The Iranian nuclear program and increased North Korean provocations. On Iran, there are tentative signs of cooperation between Washington and Beijing. Clinton reiterated the claim that the United States has full support in the U. N. Security Council (UNSC) plus Germany over a draft resolution imposing a new round of sanctions against Tehran. The Chinese not only did not refute her comments but also issued a statement saying discussing sanctions did not mean diplomacy was not still the best solution. In other words, the Chinese appear to have implicitly acknowledged their participation in the sanctions draft without formally agreeing to sanctions — which fits with their policy of favoring the diplomatic track while remaining ambiguous until the UNSC actually votes on the resolution. There is still room for China to back away from sanctions, especially if Russia rejects them, since Beijing would no doubt prefer to maintain good ties with Iran and not to escalate tensions in the Persian Gulf. But Beijing also does not want to draw Washington’s ire, and the fact that the United States has already reduced the harsh tones it took against China only months ago suggests China has become more cooperative on the matter.

On North Korea, however, the United States and China appear to be diverging along the lines of their strategic interests. Perhaps the most interesting aspect of this round of the S&ED was a meeting between U.S. Pacific Command chief Adm. Robert Willard and Chinese Gen. Ma Xiaotian, deputy chief of the People’s Liberation Army’s general staff. Statements from the news conference revealed both sides emphasizing the need for greater military-to-military communication and the Chinese pointing to U.S. arms sales to Taiwan as a hindrance but no other details about what the two discussed.

These talks occurred amid rising tensions on the Korean Peninsula. The United States has supported South Korea’s retaliatory measures against the North for attacking and sinking one of its corvettes in late March, and U.S. support amounts to greater communication between the U.S. and Korean militaries and enhanced surveillance and anti-submarine exercises in the Yellow Sea. Needless to say, Beijing is not pleased with the idea of increased U.S. naval activity so close to China’s capital and Shandong, the base of its northern fleet — giving it reason to raise its concerns with the United States. Washington, however, knows that China, more than any other country, has leverage over North Korea, and that Beijing has often refused to use that leverage.

https://www.stratfor.com/analysis/20100525_china_us_strategic_and_economic_summit_ends

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