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IHS Global Insight Perspective
The two-day talks form the premier forum for dialogue and negotiation between the United States and China, and provide a welcome opportunity for senior policymakers to meet and calm ever-bubbling tensions.
These types of events are often weak on deliverables, though rich in rhetoric and diplomatic goodwill. Nevertheless, incremental progress has been made on a number of fronts.
Without a clear follow-up mechanism, the talks risk becoming little more than a talking-shop, and it is almost guaranteed that a number of agreements will fail to materialise over the course of the year. That said, these events do help to build confidence and mutual trust, and should thus be viewed as a positive.
The Economic Track
The economic track of the US-China Strategic and Economic Dialgoue (S&ED), led by US treasury secretary Tim Geithner and China's Vice-Premier Wang Qishan, centered around "promoting strong, sustainable and balanced growth". Under this rubric, the US administration has been emphasising the need for China to hasten the appreciation of the renminbi and persist with interest rate hikes, in order to price capital and goods more effectively, and move towards a rebalanced economy, with exports and investment contributing a smaller share of GDP. The US argues that China's currency is undervalued, and as such, it provides an unfair advantage to Chinese exporters, who benefit at the expense of US manufacturers. Indeed, Chinese Customs Bureau trade figures released yesterday showed a strong return to surplus for China, which adds weight to the US case that China can do more on the currency front.
While acknowledging the steps taken by the Chinese government of late—with a gradual appreciation of the renminbi against the US dollar and four interest rate hikes since October—Geithner noted that more could be done. The US has been at pains to stress that a faster appreciation of the renminbi could help Chinese authorities battle persistent inflationary pressure, while moving towards a healthier structure of economic growth. Consumer price inflation came in today at 5.3% year-on-year, still substantially above the government's full-year target of 4%.
Diplomatic rhetoric aside, the economic track did yield some results. Geithner noted that there had been "concrete, tangible signs of progress on both sides". China agreed to alter rules that link government-procurement regulations to so-called indigenous innovation, effectively locking out much foreign participation in domestic markets. The US-China Business Council was reported as saying that 25% of the lobby group's members had lost government contracts because of the policy. China also agreed to "actively study" allowing foreign insurance firms to take a more active role in China's domestic financial markets. The auto sector was singled out for potential opening.
In turn, the US promised it would devote "full consideration" to removing some restrictions on high-tech exports, which Chinese commentators often incorrectly claim would have a significant impact on the bilateral trade balance. Wang noted that the US had agreed to give China "fair treatment in the reform of its export control regime [and] relax high-tech exports control towards China". The US also signalled greater leeway for Chinese investment into the US, notably in the banking sector.
Both China and the US agreed to improve openness surrounding export credit arrangements. China's "go out" strategy has largely been underwritten by cheap financing for foreign governments, with cash "tied" to purchases of Chinese products. Uzbekistan, for example, accessed cheap loans to purchase telecommunication infrastructure from Huawei, and numerous countries have signed loan-for-oil deals. The US, in turn, has matched China's government-subsidised financing in order to win export business worth USD477 million for General Electric in Pakistan.
The Strategic Track
China's human rights record was high on the agenda during the two-day event. US officials rebuked China over the recent crackdown on pro-democracy activists and dissidents. The session opened with US vice-president Joe Biden saying, "we have vigorous disagreement in the area of human rights". However, the most cutting remarks came from Secretary of State Hillary Clinton, when she was quoted in Atlantic magazine describing China's human rights as "deplorable". The interview focused on recent unrest in the Middle East and North Africa and was carried out on 7 April, but only published yesterday. Asked whether the Chinese government is concerned about the risks posed by waves of democracy protest in the Middle East, she said, "They're worried, and they are trying to stop history, which is a fool's errand. They cannot do it. But they're going to hold it off as long as possible". Backing up US commentary on China's human rights, the Washington government approved USD19 million in funding for technology to break through internet firewalls in China and other authoritarian countries such as Iran shortly after both governments wrapped up the talks.
The Beijing government rebuffed the US depiction of its human rights record as poor, stressing the need to deepen bilateral economic and security dialogue. During a rare interview on the Charlie Rose Show, broadcast on PBS and Bloomberg television after the first day of talks, Vice-Premier Wang expressed frustration over the bias and simplified picture often portrayed of China in the US media, adding that China will not be faced with an eruption of violent protest resembling that seen in the Middle East and North Africa. Adopting a softer tone, Executive Vice-Foreign-Minister Zhang Zhijun yesterday emphasised that the Beijing government has made "remarkable progress" on the human rights front since the establishment of the People's Republic of China in 1949, and that the government was committed to the protection of citizens' rights. Zhang conceded that no country is perfect on the human rights issue, and that dialogue is necessary on the "basis of equality, mutual respect and non-interference".
This year's talks marked the first time that senior members of the US and Chinese military have been present. Known as the Strategic Security Dialogue, the aim was to enhance the Washington administration's understanding of the People's Liberation Army in the formulation of Chinese policy, and to build trust in order to reduce the likelihood of future miscalculations. Given the ad hoc nature of military engagement between both sides, the forum was a positive opportunity to discuss sensitive issues pertaining to military defence strategy, cyber-security, US arms sale to Taiwan, and US maritime surveillance in China's Exclusive Economic Zone. While it is difficult to measure the latest talks in terms of tangible results, the new mechanism may provide an important communication and conflict management link between the two militaries over time.
Outlook and ImplicationsDespite being relatively light on deliverables, both sides stressed the overall positive tone of the meeting, describing them as key to increasing mutual trust and building on the success of President Hu Jintao's visit to the US in January. With tensions over a myriad of issues liable to flare at any point, the forum provides a useful tool to keep both governments communicating, particularly during periods of strain. In this instance, US officials appeared less critical of China's economic practices, instead lodging the bulk of complaints against the country's human rights record. Looking ahead, the importance of the S&ED will only take on added significance, although growing diplomatic and military assertiveness on the part of the Beijing regime may render it increasingly difficult for the US to navigate its way through China's complex political environment.