Relations With China Are Not Improving
It was a winter of discontent for Washington and Beijing. U.S. arms sales to Taiwan, presidential meetings with the Dalai Lama, trade skirmishes on chicken and steel, and even Uighurs freed from Guantánamo drove the two capitals apart over the past several months. But events in the past few days suggest a springtime thaw. Chinese leaders have capitulated to a variety of U.S. requests: they've agreed to consider sanctions on Iran, talked up revaluing their currency, and even loosened restrictions on foreign business in the Middle Kingdom. The Obama administration has been loudly tooting its own diplomatic horn in the wake of these "concessions," touting "unity" between the two nations that together will, as President Obama put it last year, "reshape the 21st century."
Not so fast. On issues ranging from security to the economy, it's way too early to declare a new era of cooperation and unity. Even on issues where both nations profess agreement, nothing, fundamentally, has changed in Beijing—or Washington. Let's review the evidence:
1. Nukes . China (along with Russia) has been holding out on sanctions against Iran for some time, in large part because it does billions of dollars' worth of energy deals with Tehran and needs the relationship for its own energy security. While Washington heralded a major breakthrough on this front last week when China agreed to "consider" drafting sanctions, the message the Chinese delivered to the audience back home was much more muted, as diplomats reasserted that they didn't actually believe sanctions would do any good. "Actually, there is no difference between China's current position and the position we have always stood by," said Vice Foreign Minister Cui Tiankai in a press conference after the nuclear summit in D.C. last week.
2. Currency . The U.S. has been pressing hard for a revaluation of the yuan, with cheap Chinese goods and Beijing's T-bill horde seen as one of the key reasons for American unemployment and economic troubles. But with tensions boiling over, Treasury decided to delay a report that may name and shame China as a currency "manipulator" until next month. In return, Chinese president Hu Jintao reasserted his commitment to currency reform. Markets didn't buy the Kabuki theater, and economists last week lowered expectations for a significant revaluation, with most now betting on only a minor adjustment in the middle of the year.
3. Unfair treatment of foreign businesses . A new survey from the American Chamber of Commerce in China puts the percentage of U.S. companies who feel "unwelcome" in China at 38 percent, up from 15 percent in 2008. In response, Beijing softened some of the rules around foreign direct investment (FDI) late last week, making it easier for outside firms to get in on the lucrative clean-energy and high-tech fields. But as Global Insight analyst Xianfang Ren points out, "the overall FDI policy is still in line with a framework laid down in 2007—a plan which marked a sharp turnaround of China's FDI policy stance from unconditionally supportive to more selective and regulated."
No wonder. Over the past two years, in the wake of the financial crisis (which China sailed through, maintaining 8 percent economic growth), the Middle Kingdom—now the world's second-largest economy—has acquired a weight in the world that means it can simply say "no" to people, companies, and ideas that it doesn't like. And increasingly, it will. From climate change and energy politics to financial reform, Beijing has its own agenda and is unlikely to truly capitulate when it believes that its own best interests are in conflict with the agenda of the West.
Indeed, winter is coming again, and sooner than we might think, especially when it comes to economic sparring between the superpowers. Currency manipulation will once again be the focus. "It's not like 2005, when a small move [on currency] is enough to get the Americans focused on other issues," says Eurasia Group head Ian Bremmer. "Against the backdrop of a vastly different economic climate, China is becoming the issue for American labor … and the private sector." Look for Congress to push harder on the currency issue before the fall elections, which could result in a new round of trade tensions—and serious diplomatic problems for the president. Last year, more people globally viewed China as a positive force in the world than the U.S., according to a poll carried out every year by the BBC World Service. This year, the tables are turned, in large part thanks to the "Obama effect." Still, it's doubtful that such soft power will be able to reshape the hard and increasingly contentious realities of the world's most important relationship.
