Time to Defriend China

The quest for the illusory "G-2" has wasted everyone's time for long enough.

BY ELIZABETH ECONOMY, ADAM SEGAL | MAY 24, 2010

"This is not a G-2." With those words, Deputy Secretary of State James Steinberg finally sounded on May 11 at the Brookings Institution the death knell for the much-touted, if misguided, idea that China and the United States would band together to solve the world's problems.

The idea of a "G-2" was first introduced by C. Fred Bergsten, director of Peterson Institute for International Economic, as a mechanism for promoting agreement between the two sides primarily to address international economic issues. However, it migrated to strategic issues, championed by old Washington hands like Henry Kissinger and Zbigniew Brzezinski. The idea resonated with the White House and Foggy Bottom, where hopes were high for joint efforts to solve the financial crisis and address climate change. As Secretary of State Hillary Clinton remarked in a February 2009 visit to Beijing, "The opportunities for us to work together are unmatched anywhere in the world."

That hope was short-lived. It has become painfully clear during the first year of Barack Obama's administration that mismatched interests, values, and capabilities make it difficult for Washington and Beijing to work together to address global challenges. China's unwillingness to sit down with the United States and its maneuverings with India, Brazil, and South Africa to undermine a larger agreement at Copenhagen were clear signs that building a special relationship would not be easy. America's approval of arms sales to Taiwan in January and the Dalai Lama's visit with Obama in February returned both sides to old suspicions and sensitivities.

But while we now have a more realistic assessment of what the U.S.-China relationship is not, we still lack a positive formulation of what it is -- or should realistically become. Next week's U.S.-China Strategic and Economic Dialogue (S&ED), the annual high-level dialogue on economic and political issues led by Clinton and Treasury Secretary Tim Geithner on the U. S side and Vice Premier Wang Qishan and State Councilor Dai Bingguo on the Chinese, is unlikely to address this lack of a larger framework. In fact it will compound the problem.

In the run-up to next week's meetings, U.S. officials have been all over the map in framing the topics for discussion. State Department officials have identified at least 20 issues of strategic importance to discuss in Beijing. The Treasury Department has laid out an equally broad agenda that includes trade and investment barriers, balanced growth, financial reform, and strengthening the international economic and financial architecture. Meanwhile, some White House officials have mentioned specific goals, such as RMB revaluation; others have said the goal is the development of a larger framework to address strategic issues; still others have said they hope that by putting controversial issues like local content requirements on the agenda, they can get the most senior Chinese officials to make decisions on topics that would typically disappear within the bureaucracy.

These are all worthy objectives and outcomes, but the lackluster history of similar dialogues suggests there are better ways to spend our time and effort. Past such dialogues have achieved only modest success delivering on specific goals. Yes, it's true that the last S&ED yielded agreements on EcoPartnerships, collaboration on electric vehicle standards, and development of smart grids. Yet such small-scale cooperation and capacity-building have been a staple of U.S. energy and environmental talks for decades. These narrow goals would hardly seem to merit flying more than a dozen U.S. cabinet members and agency heads crossing the Pacific.

Let's be realistic: Progress on core U.S. strategic interests largely emanates from outside such talks. For instance, at Copenhagen, China reversed its stance on two core issues related to its climate change negotiation position, establishing voluntary emission reduction targets and offering to move to the back of the line for international funding assistance. Both of these moves, however, were a response to concerns in the developing world, not U.S. pressure. Similarly, Beijing's apparent willingness to rescind the most controversial portions of a proposed government procurement strategy that would have closed off a large portion of the Chinese market to foreign technologies arose from widescale global protest, not simply U.S. objections. And China's recent decision to support the U.S.-led sanctions against Iran depended largely on Russia folding first and leaving China without political cover to maintain its opposition.

JEWEL SAMAD/AFP/Getty Images

 

Elizabeth Economy is the C.V. Starr senior fellow and director of Asia studies and Adam Segal is the Ira A. Lipman senior fellow for counterterrorism and national security studies at the Council on Foreign Relations. They blog at Asia Unbound.

DAHAI_SHING

10:47 AM ET

May 24, 2010

how about US treasury?

Elizabeth is right at the mirage of G2. China has no interest to recognize a G2 status and hence has nothing to lose from a disband. The point is that US needs to woe China with G2 mirage so that China can continue to buy US treasuries. Now matter how close US allies with Japan and the Europe, it is still China's decision to invest its money either in the US treasuries or the natural resources around the world.

In sum, it is a question of who needs who.

 

ALARMRAGE

9:12 PM ET

May 24, 2010

Yet again

with this fiction that the China has a choice about where it invests its bloated forex reserves and that somehow the US "needs" China to fund its deficit. I know such writers as Thomas Friedman are also confused about this, but it is getting a bit tiresome. China cannot maintain the peg to the US dollar without buying US assets, quite simple. The balance of payments must always balance. The PBOC is running a mismatched balance sheet which includes huge inherent losses that have not yet been realized, but they will do some day, for certain. (that's what you get for buying unlimited US dollars at above market prices and selling unlimited RMB at below equilibrium prices). In addition, the PBOC has contingent liabilities for its overvalued assets, and it needs to service this debt. Why does no one understand balance sheets anymore???

 

FREETRADER

2:41 AM ET

May 25, 2010

@Dahai Shing

Wow, it's comforting to see that your ignorance of economics is at least equal to your utter cluelessness regarding history and political science. You are three for three!

So the US has to "woo" China into selling US consumers its products? The US has to woo China into confiscating the savings of Chinese citizens in order to keep the RMB from rising? Wow, I never realized how just much influence the US has on the Chinese government.

Oh, and by the way, the whole G2 thing was promulgated and promoted by a Beijing academic.

 

DAHAI_SHING

9:16 AM ET

May 25, 2010

@ ALARMRAGE

The balance sheet problem in your post is real if China hoards USDs. But if China trades the USDs for natural resources, then the green paper burden will be transferred to the nations who sell resources to China.
That's why I say buying natural resources or US treasuries are two parallel options for China, and China is well aware of this.

 

ALARMRAGE

10:22 PM ET

May 25, 2010

@DaHai_Shing

Your assumption is that the sellers of the resources would be happy to keep the dollars as poorly performing reserves, despite presumably now running a trade surplus with China, not the US. I think however you jiggle it around, you are going to end up bringing the USD/RMB peg under even more pressure than it already is, not just politically, but financially. China has to realize its losses one day. Incidentally, many would argue that US govt deficits leak abroad through the trade deficit, do you really think that the US would allow China to abandon the dollar whilst still maintaining its huge (notwithstanding recent evidence which is still inconclusive) current account surpluses - ie the dollar peg? It would politically impossible for the US, and also many would argue financially impossible for everyone. China cannot have its cake (ie the export boosting peg) and eat it (escaping the dollar dilemma).

 

ALARMRAGE

10:30 PM ET

May 25, 2010

@DaHai

sorry i submitted before i finished.

I would also worry about the effect on China's international position if it moved more than a few hundred billion dollars into buying resources... Lets say China buys up (somehow) 1.5 trillion USD worth of Oil, Iron Ore, Bauxite, Lumber, mining rights, drilling rights (and somehow persuades the target countries to blindly carry on China's loss making holdings of US dollars over the long term, despite the fact that China is so obviously eager to dump them), the effect on world commodity prices would be crippling...and, if China one day takes these resources home for its companies to use (presuming it is not simply going to hand them over to said companies for free) then have you thought about the RMB transactions which would need to result (unless the RMB was internationalized?????

i maintain that your suggestion is pretty much folly. Although a few hundred billion would be possible over a few years...

 

SURESH SHETH

11:28 AM ET

May 24, 2010

US created this Chinese challenge

It was Hillary Clinton’s illusion when she said in Beijing in February, 2009 that ‘the opportunities for us to work together are unmatched anywhere in the world’. It was a mere wishful thinking on part of Hillary not shared by Chinese leaders who have their own ideas about what is right and what is wrong in this world and how to correct it.
Even though Hillary’s US does not want to acknowledge it, second cold war is already here, this time between US and China. And unlike old US-Soviet cold war, creditor China has the upper hand in this cold war with debtor US.

And US has nobody to blame but itself for the rapid rise of China to challenge US.

Afterall China was a pariah country in the world just like today’s North Korea until anti-Communist Nixon’s 1972 visit. All the West European and East Asian countries stayed away from China following the US lead until 1972 and embraced China after Nixon’s visit. While US would not give MFN status to Soviet Union (remember Jackson-Vanik amendment?) unless Russia shed Communism, it had no problem giving it to China’s Communist dictators with a capitalist mask. Trade with China expanded by leaps and bounds during 12 years of Republican rule beginning in 1981. Bush Senior had no problem sending his national security advisor to Beijing within two months after Tiananmen massacre. After campaigning against butchers of Beijing in 1992 elections, even Bill Clinton became enthusiastic supporter of trade with China once he took lessons in foreign policy from Nixon in early 1993 during a special Whitehouse-arranged meeting. US also promoted China to a super power status by accepting it as a permanent UNSC member.

US businesses were supposed to benefit from huge Chinese consumer market. Instead that theory of American economists and China-apologists has been turned on its head and China has benefited far more from vast American and European markets. China used huge trade surpluses with US and the West to buy all the military equipment in the world. And China with its foothold in US and Western Europe, spied away any technology it could not buy.

Now China has US by the tail - US businesses are hooked to huge profits that cheap Chinese products generate for them as a walk through any Walmart, Sears or Home Depot filled with cheap Chinese goods attests to and US government is hooked to huge investments that Chinese government makes in US treasuries.

Nixon’s China embrace to counter Soviet Union has come back to haunt US with the rise of China to challenge US just as Reagan‘s embrace of Islamic fundamentalists to counter Soviet Union in 1980s Afghanistan came back to haunt US in the form of 9/11 attacks.

Reagan must be squirming in his grave for his Republican predecessor Nixon being responsible for the rise of dictatorial China as a threat to US after Reagan was supposed to have vanquished Soviet Union.

The West will desperately try to reverse the rise of China but will be largely unsuccessful. Little could Mao or even Deng have imagined that their followers will beat capitalists at their own game. Lenin used to say that ’capitalists will sell us the ropes with which we will hang them’. With the West selling such ropes (in the form of technology transfers), China has proved that Lenin quote quite prophetic.

 

FREETRADER

2:55 AM ET

May 25, 2010

Mostly wrong - trade benefits China and the US

The US benefits significantly from its trade relationship with China, and China is not particularly a threat to the US, as you indirectly allude to you in your post. China, of course, also benefits from the gradually increasing wealth of its citizens (even if much of that money is siphoned off by corrupt officials).

Nobody in 1980 wanted China to continue to wallow in the squalor Mao imposed on it through its idiotic policies. When the history of the 20th and 21st centuries is written, China's dragging itself of the mud of feudalism and Maoism onto the world stage, with a little help from the US, will be one of the great stories told.

Grappling with the richer, more confident China (but also one that has vast demographic and social problems and a bit prickly about their recent history) is indeed a challenge, but a China prostrate benefitted no one. China will never be able to match the wealth and military power of the US, so is not a strategic threat. It will eventually be a (hopefully more responsible) regional power. In any case, we should greatly prefer an emerging, quasi-facist China like we see today, one that has a vested interest in the rest of the world, than the impoverished, starving charnel house of the previous 80 years. 1978 China saw no problem in supporting the Khmer Rouge government in Cambodia that murdered one third of its people. China today knows it has to be careful no to let its allies go too overboard, because China has a stake in what other countries think of it.

China is no long term threat to the US, at least, it is less of a threat than a starving China was.

 

ALARMRAGE

10:32 PM ET

May 25, 2010

???

not sure if CHina has "bought up all the military equipment in the world". Their military still pretty much sucks

 

ROSABAB308

5:58 AM ET

June 23, 2010

U.S.-China Relationship

America must do all it can for the on going economic crisis, China says and it promises it will spare no energy to support the US. hemorrhoid relief In an atmosphere of strong cooperation Beijing and Washington started the new round of bilateral on economic cooperation on December 4 in what is de facto a G2 — the summit of the two most important countries in the wordl now. he issue of agreeing on a roadmap of political reform for China, I presume, is a complex issue. Some in China are afraid that people in the US might want to use this process of democratization to undermine China’s stability, create chaos and ultimately break up China. Now these might be consipracy theories, but to assuage these Chinese fears the US should provide some political guarantees. Without these guarantees of course it would be difficult for China to agree on a roadmap. hemorrhoid treatment That is China would proceed with its democratization process, but indipendently and without agreeing with America. China needs to provide a roadmap, but not to make commitments it cannot keep. This is a delicate and difficult issue, and I am not sure precisely what the first step should be.

 

MAOZEWRONG

12:40 PM ET

May 24, 2010

China-US relations Gumbyzed

Hillary Clinton not afraid to challenge the Chinese on the pressing issue between the powers: Did China steal Gumby for the Shanghai Expo. Meanwhile, protests sweep America as Gumby-gate goes global. Read about it at: http://chinareallysucks.com/Site/New_Stuff/Entries/2010/5/24_Clinton_to_China%3A_Give_US_Back_Gumby!.html

 

YOSHIMICHI MORIYAMA

8:04 AM ET

May 25, 2010

The Chinese spell

The Chinese love to appear very big. They know how to look larger than they really are. They have cultivated the art for this in their over two thousand years' history.
Ms. Economy and Mr. Segal set us free in their writings in Foreign Policy and Foreign Affairs, etc. from the Chinese spell. I would like to suggest to those interested to read Mr. John Lee of the Centre For Independent Studies, Australia. He, too, is good at taking the life-size picture of China. Unnan City, Japan

 

TING-SHIANG LEE

6:41 AM ET

May 26, 2010

Going Forward

Going forward, US will expedite recognition of China's market economy status through cooperative mechanism.

http://world.people.com.cn/GB/8212/191426/index.html

Going forward, US and China have decided to hold the third round of U.S.-China Strategic and Economic Dialogue (S&ED) in 2011.

http://news.xinhuanet.com/2010-05/26/c_12145373_2.htm

 

TOMHE

7:43 AM ET

May 27, 2010

there should be a safe distance

If US and China move too close, the world will see a rise of nationalism within China. It is hard to describe the dynamics of the rise; but the nature of human being drives people to oppose something which is coming too fast.

A certain degree of enmity between US and China is needed; the politicians of both countries need to find something to work on.

 

MICHAELTURTON

8:01 AM ET

May 27, 2010

Good work

Excellent and timely piece. I think more and more articles like this will be appearing over the next few years as China's neighbors and our allies grapple with its rising power and appetite for its neighbor's lands. Freetrader above is flat wrong -- there are many ways China can harm the US without firing a shot, from its massive espionage program against western businesses to its support of authoritarian regimes and anti-democracy programs, and of course, its increasingly and often unnecessarily aggressive posture against its neighbors who are US allies, Japan being a prime example of this -- a nation that the US has a formal treaty of defense with and with which we have conducted military exercises in disputed waters.

One thing that stands out for me, sitting in Taiwan, is the rampant insanity of the US obsession with the Middle East. Not only are we squandering resources fighting pointless and criminal wars in Iraq and Afghanistan, we are widening these conflicts with secret attacks across the region, including the drone assault in Pakistan, that is souring the whole region on us. The only winner can be China -- someday it will amaze future historians that the US spent so much blood and treasure stabilizing Afghanistan for Chinese expansionism. Our whole Middle East policy is simply a demonstration that Israel's most important occupied territory is American foreign policy debates.

Meanwhile Asia re-orients itself on China, and the US government refuses to engage in the energy, manufacturing, and military policies the nation urgently needs to maintain its living standards and position in the world. It's past time to put the focus on Asia, where the future lies, and to gear up to meet the diplomatic, economic, and military challenge of China.

Michael Turton
The View from Taiwan

 

RUNMELORUN

1:17 PM ET

May 27, 2010

I can't help but laughing ...

When going through this article and the above comments.

The author, who happens to be a senior fellow (I truly wonder how she swings that), has a mind and IQ of 15 yr old on real world politics and diplomacy. The other commentators miraculously managed to get 3 to 5 yrs under.

Each and every recent US president, before or right after they came to the WH, had not only tried to defriended China, but also demonized China. But after a yr or 2, they all reversed their courses. Any of your lovely young minds could figure out why?

First and foremost, no sane leaders would want to declare his nation the enemy of 1.2 billion people. Lunatic citizen like Michael Turton probably wants to declare war against China if one day he can, just because he doesn’t like them ideologically, or he's bitter about the fading away hope of Taiwan's Independence movement, but fortunately he will never run any important offices, in US or Taiwan.

Secondly, we are about 10 yrs late to pressure China for ANYTHING. We had never ever succeeded in anything when we tried to pressure China, not 20 yrs ago when that place was a shit-hole, certainly not now when they have grown to the big kid in the block. If we want any courtesy from China, we've got to ASK, if we want any real help from China, we've got to help them FIRST, and I don’t think selling 7 billion$ weapons to Taiwan qualifies for anything remotely related to helping them.

Otherwise, unfortunately, China will act on her OWN courses, based on her OWN interests, predictably and understandably. Setting their currency undervalued, continuing to buy oil from Iran, keeping NK from collapsing, for all the things we have been venting about, but you've got to ask yourselves, are these things in the interests of 1.2 billion Chinese and their nation? if the answer is arguably yes...well, you probably wont like it, but you have to RESPECT it. That's called the collision of interests, you resolve that by negotiating and compromising, not by saying "I don’t wanna be your friend anymore!"....what a joke.

 

ANDREWJACKSON

6:48 PM ET

May 27, 2010

China Won, Globalists Finally Realizing?

America is a debtor nation to China. We all pay taxes which go into their coffers. This will continue for our lifetimes. The majority of our industry, our manufacturing capacity which is what made this country great, has been moved there. This was all planned. Institute income taxes, sales taxes, property taxes, SS taxes, medicare taxes, health care obligations, other pension obligations, OSHA requirements at home. Then institute free trade so that we could never compete with countries not falling under those burdens. The globalists bet big on throwing money at China turning peasants into tech workers, thinking they would be controlling it. Looks like they didn't do their research. This will only turn developing nations towards state capitalism of a China model because it worked so well here.

 

ARIFBOLANGA

9:37 PM ET

June 5, 2010

China actually not athreat for US

I think the US and China have same propose to gradually increasing wealth of its citizens and that will become wonder full if they can make a relationship which gain benefit for each country.

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