Fair Currency Coalition

China’s Trade Barrier Playbook: Why America Needs a New Game Plan

China’s Trade Barrier Playbook: Why America Needs a New Game Plan
by Ed Gerwin and Ryan McConaghy

http://campaigns.turingstudio.com/t/r/l/iuilijl/fkrurltlr/y/

This new report highlights the “top plays” that China uses to protect its favored firms from U.S. import competition. These include “enhancing performance” through illegal subsidies, “stealing the play” by robbing valuable American ideas, and “running out the clock” on China’s long-promised market reforms.

To counter China’s playbook, American needs a new China game plan that goes beyond countering unfair currency manipulation—a plan that will use aggressive trade enforcement, stricter rules and strong allies to help America’s exporters and workers go on offense and score more business in China’ lucrative and growing market.

China’s Trade Playbook

http://content.thirdway.org/publications/484/Third_Way_Infographic_-_China_Trade_Playbook.pdf

Biggest Holders of US Government Debt

As the U.S. government spends an unprecedented amount of money to fix the economy, there is an equally great need to raise the cash to pay for it. This is accomplished through borrowing, whereby Uncle Sam sells Treasury securities of varying maturity.

For investors, government bills, notes and bonds are considered safe because they have a guaranteed rate of return, based on faith in future U.S. tax revenues. The government has been partially funding operations via Treasury securities for decades.

This borrowing adds to the national debt, which has recently surpassed $15 trillion and is rising every second. The amount of debt is quickly approaching the federal debt ceiling, a legal limit to borrowing that currently stands at $16.4 trillion.

Much of that debt is held by private sector, but about 40 percent is held by public entities, including parts of the government. Here’s who owns the most. Foreign countries listed include private and public investors, according to monthly U.S. Treasury data.

1. Federal Reserve and Intragovernmental Holdings

U.S. debt holdings: $6.328 trillion

That’s right, the biggest single holder of U.S. government debt is the Federal Reserve system. The Fed’s system of banks and other U.S. intragovernmental holdings accounted for a stunning $6.328 trillion in U.S. Treasury debt in Spetember 2011 (the most recent number available). The amount is an all-time high as the Federal Reserve continues to expand its balance sheet, partially to purchase U.S. government debt securities.

About a decade ago, the total government holdings were “only” $2.5 trillion.

2. China

Photo: DAJ RM | Getty ImagesU.S. debt holdings: $1.132 trillion

The largest foreign holder of U.S. Treasury securities, China currently has $1.132 trillion in American debt, although it is down from all time highs of $1.173 trillion in July 2011. For more on China and currency, see CNBC Explains.

3. Other Investors/Savings Bonds

U.S. debt holdings $1.107 trillion

With the most recent numbers from June 2011, this extremely diverse group includes individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts, estates, savings bonds, corporate and noncorporate businesses for a total of $1.107 trillion.

Although the level of debt held in U.S. savings bonds has remained basically constant since 2000, the broad category of “other” investors has nearly quadrupled since reaching a four-year low in December 2007.

[Also see: Money Missteps That Matter <http://yhoo.it/zK87RK> ]

4. Japan

Photo: APU.S. debt holdings: $1.038 trillion

One of the U.S.’s largest trade partners, Japan is also one of the U.S.’s largest debt holders, currently owning $1.038 trillion in Treasury securities.
5. Pension Funds

U.S. debt holdings: $842.2 billion

Pension funds control large amounts of money, reserved for personal retirements, and thus are obligated to make relatively safe investments. This group, which includes private and local government pension funds, holds $842.2 billion in U.S. debt. The private pension fund category also includes U.S. Treasury securities held by the Federal Employees Retirement System Thrift Savings Plan G Fund.

6. Mutual Funds

U.S. debt holdings: $653.5 billion

According to the Federal Reserve, mutual funds hold the sixth-largest amount of U.S. debt compared to any other group, although mutual fund holdings have diminished by more than $105 billion since December 2008. Including money market funds, mutual funds and closed-end funds, this group of investments managed about $653.5 billion in U.S. Treasury securities as of June 2011, which are the most recent numbers available.

7. State and Local Governments

U.S. debt holdings: $484.4 billion

U.S. state and local governments have nearly a half-trillion dollars invested in American debt, according to the Federal Reserve. The level of investment has remained stable since 2006, moving within the range of $484 billion and $576 billion. The current debt holdings, however, represent the lowest aggregate level for state and local governments since December 2005, when they stood at $481.4 billion.

[Also see: Save Up to 50% at the Grocery Store <http://yhoo.it/ywx3lQ> ]

8. The United Kingdom

Photo: Dominic Burke | Getty ImagesU.S. debt holdings: $429.4 billion

The U.K. currently holds $429.4 billion in U.S. debt, but the country’s investment has fluctuated dramatically during the past two years. Now at its all-time high (and rapidly increasing), British holdings were as low as $55 billion in June 2008.
9. Depository Institutions

U.S. debt holdings: $284.5 billion

As of June 2011 (the most recent numbers available), the Federal Reserve Board of Governors lists depository institutions as holding about $284.5 billion in U.S. debt.

This group includes commercial banks, savings banks and credit unions. In 2011, its holdings more than tripled from the 2008 low of $105 billion. Between June and September 2011, holdings for depository institutions fell by nearly $44 billion.

10. Insurance Companies

Photo: Sylvain LeprovostU.S. debt holdings: $250.1 billion

According to the Federal Reserve Board of Governors, insurance companies hold $250.1 billion in Treasury securities. This group includes property-casualty and life insurance firms.
Click here for the full list of Biggest Holders of US Gov’t Debt. <http://www.cnbc.com/id/29880401?__source=yahoo%7Cusgovtdebt%7C&par=yahoo>

China’s Growth Engine Declines, Wall Street Journal

JANUARY 17, 2012
China’s Growth Engine Declines

By TOM ORLIK and BOB DAVIS
BEIJING—China posted GDP growth of 8.9% in the last quarter of 2011, compared with a year earlier, a number that came in higher than had been expected but one that nevertheless showed that the world’s fastest engine of growth is downshifting.
China’s fourth-quarter performance would be the envy of most any other nation, and markets reacted positively to the data, with the Shanghai Composite Index rising 4.2%, its biggest rise in two years. Indexes around the world—eager for any sign that China can steer its economy toward to a soft landing and help offset weakness elsewhere—also took heart from the data.
The government is aiming to lift domestic demand’s role in driving China’s growth, and robust growth in domestic consumption contributed to the higher-than-expected fourth-quarter number: For the full year, real retail sales growth of 11.7% outpaced growth of GDP. Wages are rising, and the government hopes that will encourage domestic households to spend still more.
However, analysts believe that transition may not be fast or extensive enough to save China from lower growth in the months ahead. When measured on a quarter-on-quarter basis, China’s growth fell more sharply to 8.2%, reflecting slower growth in exports and weaknesses in the country’s property market.
Late last week, J.P. Morgan forecast that GDP growth will decline further in the current quarter, though after the “stronger-than-expected” GDP data release Tuesday analysts were revising their outlook. “A hard landing for 2012 remains a distant scenario,” analysts wrote Tuesday, but they highlighted “risks from both external and domestic sources” in the near term.
The global economy increasingly depends on China for growth. An expanding Chinese economy creates demand for commodities from many developing countries and for industrial products and services from wealthy ones. China, the world’s second-largest economy, has also become one of the world’s leading destinations for foreign investment.
Among the world’s major economies, Europe is widely forecast to slump into recession this year, Japan to limp along at growth of roughly 1% and the U.S. to be lucky if it reaches 3% growth. The data eased fears among investors in Asia that China’s growth would suffer a more precipitous decline: Hong Kong rose 3.2% in Tuesday trading . Markets in Japan, Australia and India also rose.
The last time the Chinese economy slowed significantly was in the last quarter of 2008 when the world was tumbling into recession. Over the next two years, China responded with a four trillion yuan ($586 billion) stimulus plan that was financed by a surge in lending by state-owned banks. The response helped boost China’s growth to 9.2% in 2009 despite the global downturn.
But the stimulus also produced a legacy of inflation, a real-estate bubble and a hard-to-quantify level of bad debts. Throughout 2011, Chinese policy makers struggled to contain price increases, and now they are unlikely to unleash a new round of lending that could undo their gains. “Overall, we need to plan for the worst external environment without relaxing efforts to keep prices from rising too quickly,” China’s central-bank governor, Zhou Xiaochuan, told prominent business-news magazine Caixin recently.
Even if Beijing wanted to step on the gas, the potential growth rate of the Chinese economy isn’t what it was. A labor force that has already plateaued and will soon start to shrink in size, and diminishing returns to further investment mean the double-digit growth of the precrisis years are likely a relic of the past.
Forecasts by the Conference Board, the U.S. think tank, see growth in China at 8% year-to-year in 2012, and slowing to an average of 6.6% from 2013 to 2016. Economists Barry Eichengreen of the University of California at Berkeley, Donghyun Park of the Asian Development Bank and Kwanho Shin of Korea University, after studying the history of other onetime growth champs, argue that China’s annual growth rate will begin to “downshift” by at least two percentage points starting around 2015.
For all of 2011, China grew 9.2%, compared with 10.4% in 2010. For the fourth quarter, the 8.9% GDP growth, compared with a year earlier, was the lowest reading since the second quarter of 2009 during the global recession.
China has begun to ease monetary policy to try to avoid a calamitous drop in growth. In November, the central bank moved earlier than expected to reduce the bank reserve requirements by 0.5 percentage point, paving the way for a bounce in new loans in the final months of the year. But the government’s policy response is constrained by the consequences of the last surge of stimulus lending, which ended up heavily burdening local governments that borrowed for infrastructure projects. In 2011, a report by the government’s own auditor acknowledged 10.7 trillion yuan ($1.7 trillion) in debts taken on by local governments.
Dong Wenbiao, the chairman of Minsheng Bank, China’s ninth-largest bank by asset value, said that the risk of a local-government-debt bubble blowing up is grossly overstated. “Local governments borrowed a lot, but they used the money to build roads, railways, bridges,” he said. “Those are assets they can sell to make good on their debts.”
The Chinese economy is buffeted by two very different forces. Slow growth globally has hurt Chinese exports, including to the European Union, China’s largest trading partner. Chinese exports there grew just 7% year-to-year in December, down from a midyear high of 22% in August.
Exporters foresee further trouble to come. Li Ji, a sales manager at Hangzhou Iron and Steel Group, says the firm’s main concern is demand from Europe and the U.S. “The orders don’t flow as freely as they once did,” he said. Wages are rising, and the government hopes that will encourage domestic households to spend more, but perhaps not fast enough to make up for the shortfall in foreign orders in the year ahead.
Market analysts pointed to strong retail sales as cushioning the decline in GDP growth. In December, the value of retail rose 18.1% compared with the year earlier, somewhat faster than sales growth in November. J.P. Morgan attributed the gain to “some front-loading of consumer spending” ahead of the Chinese New Year holiday, which starts Jan. 23.
More fundamentally, domestic spending represented about 52% of GDP growth in the first quarter, according to Barclays Capital, a higher percentage than in the full-year GDP results for 2009 through 2011. China has long been criticized for relying too much on investment and exports for growth and not enough on domestic spending.
Chinese officials have said they are working on new incentives to spur domestic spending because ones subsidizing purchases of cars and appliances have expired. During U.S. Treasury Secretary Timothy Geithner’s recent visit to Beijing, China’s vice president, Xi Jinping, who is expected to become China’s president and Communist Party chief by 2013, privately reiterated China’s desire to shift its economy to rely more on domestic consumption and less on exports and foreign trade. The U.S. believes that the weak global economy has made China more aware of the need to change.
China’s other major weakness is its property market, but there Chinese government policy plays a major role. Beijing has been trying to rein in prices by making it more difficult for developers to finance luxury apartments and making it harder for investors to buy them by requiring down payments of as much as 60%, among other measures. Almost two years of such controls on the property sector has put a serious dent in sales, and developers are starting to go slow on new projects. New floor area under construction contracted in December compared with a year earlier, a stark contrast with growth of 32% in August.
In a company newsletter, Song Weiping, chairman of Hangzhou-based luxury developer Greentown China, said in December that the firm’s 2012 priority would be to “make every effort to survive.”
China is counting on its massive effort to build low-income housing, called “social housing,” to provide enough demand to keep the real-estate market from collapsing. China’s real-estate sector could account for roughly 25% of its GDP, when counting raw materials, construction and the furniture, appliances and other goods used to outfit apartments.
But it is unclear whether China could accelerate the program, whose goal is to build 36 million subsidized apartments by the end of 2015—enough units to house the entire population of Germany. The Ministry of Housing has reduced the 2012 target for social-housing starts to roughly seven million in 2012 from a goal of 10 million in 2011. Some reduction was expected, but the large decline reflects concern that local governments couldn’t meet the construction targets and were inflating their claims of progress.
Financial markets anticipated worse news ahead. The Shanghai Composite Index fell 21% over the course of 2011. “China’s equity markets haven’t always got it right, but if they are in any sense a discounting mechanism they suggest much worse economic data to come,” said Paul Cavey, China economist for Macquarie.
— Stefanie Qi and Esther Fung contributed to this article.

China Sold Treasurys in November, Wall Street Journal

JANUARY 19, 2012
China Sold Treasurys in November

By IAN TALLEY and JEFFREY SPARSHOTT
WASHINGTON—China sold U.S. Treasurys in November, but remained the largest foreign holder ahead of Japan, the Treasury Department said.
Overall, foreigners were net buyers of long-term U.S. financial assets in November, a month in which Europe’s debt crisis continued to boost the appeal of U.S. government debt, according to the monthly Treasury International Capital report, known as the TIC.
China’s net holdings fell $1.5 billion to $1.133 trillion, following net selling of more than $14.2 billion in October. It pared its holdings of long-term and short-term Treasury obligations. With the exception of two months in the middle of 2011, net holdings by China have largely trended down over the past year.
But analysts caution the data may not reflect the full spectrum of China’s activity in the market. For example, the Treasury last year adjusted its estimate of China’s holding based on use of proxies in other countries, such as the U.K., which boosted its net holdings of U.S. Treasurys by more than 4%.
Japan, meanwhile, continued to be a heavy net buyer of Treasurys, accumulating U.S. debt to record levels and threatening China’s top holder position. Japan remained the second-largest holder of Treasurys, lifting its holdings to $1.039 trillion from $979.0 billion in October.
Among all foreign investors, net purchases of U.S. Treasury notes and bonds totaled $54 billion, compared with net buying of $15.3 billion in the previous month. Private foreign investors bought a net $28.1 billion in Treasury notes and bonds, after buying a net of $18.6 billion in October.
“Foreign investment in U.S. securities rebounded strongly across the board in November, offsetting a particularly dismal performance in October,” said Michael Woolfolk, managing director at BNY Mellon Global Markets, in a client note.
The report underscore the confidence that foreign investors continued to have in U.S. Treasurys despite its debt downgrade in August, he noted.
The closely watched figure of net long-term securities transactions showed total buying of $59.8 billion in long-term U.S. securities in November, after purchases of $8.3 billion the month before.
More broadly, net purchases of long-term U.S. securities, including transactions that don’t occur on the open market, totaled $44.4 billion following net selling of $5.2 billion the month before.
The monthly Treasury report highlights cross-border acquisitions of securities with maturities of more than one year including nonmarket transactions such as stock swaps and principal repayment on asset-backed securities.
The report’s most comprehensive category, “monthly net TIC flows,” includes nonmarket flows, short-term securities and changes in banks’ dollar holdings. This measure of net foreign capital inflow was $48.6 billion, compared with an outflow of $39.6 billion in October. Financial market analysts consider the monthly data from the Treasury Department to be a significant but imprecise gauge of how easily the U.S. can finance its trade deficit.
U.S. data released last week showed the trade gap widened in November, on slumping euro area exports and rising oil prices, showing the first trade signs of the European debt crisis breaking on American shores. The trade deficit with China narrowed, however, as exports surged to new level and imports fell from October’s record.
Write to Ian Talley at ian.talley@dowjones.com and Jeffrey Sparshott at jeffrey.sparshott@dowjones.com
Copyright 2011 Dow Jones & Company, Inc. All Rights Reserved

The Impact of U.S. Debt to China, Asia Society

The Impact of U.S. Debt to China (Complete)
NEW YORK, January 12, 2012 — Richard J. Herring of the Wharton School, Thomson Reuters anchor Frederick H. Katayama and Peterson Institute Senior Fellow Nicholas R. Lardy look at concerns regarding China’s power over the U.S. as its main creditor. HSBC North America’s Stephen Bottomley provides introductory remarks. (1 hr., 14 min.)

Video Link:

http://asiasociety.org/video/business/impact-us-debt-china-complete

Conflict and confusion: China’s currency policy, Financial Times

December 15, 2011 10:16 pm
Conflict and confusion: China’s currency policy
By Sebastian Mallaby
The partisans of China’s rise are brandishing a new argument. Not only is China the world’s most prolific exporter, wealthiest sovereign creditor and second-largest economy. It is also on track to be the leading provider of the world’s reserve money – perhaps within a decade, in the estimation of Arvind Subramanian of the Peterson Institute for International Economics. But China’s miracle economy is not quite as miraculous as all that. Indeed, the internationalisation of the renminbi is less a sign of China’s rise than of its internal confusion.
The renminbi’s ascent appears superficially impressive. Renminbi-settled trade transactions came to Rmb957bn ($146bn) in the first half of this year, from next to nothing a year earlier. Renminbi deposits in Hong Kong have grown to almost Rmb620bn ($97bn), up more than tenfold since 2008. The Chinese authorities have extended renminbi swap lines to foreign central banks; they want the renminbi to be included alongside other top currencies in the “special drawing right”, the quasi-currency issued by the International Monetary Fund. Given the frailty of the US, it is easy to see why commentators forecast “renminbi rules” in the near future.
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But why is the renminbi ascending? The answer starts with China’s post-2008 revolt against a supposed “dollar trap”. By the time of Lehman Brothers’ bankruptcy, China had $1.5tn worth of US financial assets, including about 7 per cent of all the “agency” bonds issued by government-linked lenders; the failure of the two biggest, Fannie Mae and Freddie Mac, showed the possibility that China could take a serious loss on this portfolio. Likewise, the post-Lehman meltdown triggered a collapse in global demand for China’s exports, causing growth to crater in early 2009. Again, China’s leaders concluded they were uncomfortably dependent on the quality of economic management abroad, particularly in Washington.
So far, so reasonable. But having correctly diagnosed their vulnerability to external shocks, the Chinese authorities were diffident in taking the logical next steps: to cease accumulating US financial assets; to accept the consequent appreciation of the renminbi; and to diversify away from exports. Instead, China’s leaders ordered up a vast stimulus that temporarily disguised their structural surplus. Then they set out to reform the dollar-based monetary order, which they blamed for their predicament.
Of course, blaming the dollar is a digression. The truth is that China’s vulnerability is homemade: nothing about the greenback’s pre-eminence forces China to run a savings and export surplus, the root cause of China’s huge reserve accumulation. But if China’s frustration with the “dollar trap” appears confused, its proposed remedy is yet more muddled. Promoting the internationalisation of the renminbi as a rival to the dollar may sound pleasingly patriotic to China’s leaders. But it contradicts most other aspects of their economic model.
China’s growth miracle features capital controls, artificially cheap loans to favoured companies and a managed exchange rate. Renminbi internationalisation undercuts all three policies. Capital controls prevent foreigners from acquiring renminbi; internationalisation encourages foreigners to hold them. It follows that internationalisation also makes artificially cheap loans harder to fund, since it opens up a channel for savers to move capital offshore, where they can escape regulatory caps on interest rates. And as internationalisation allows foreign speculators to accumulate renminbi, it creates upward pressure on the currency – pressure that an exchange rate-targeting central bank has to offset by selling renminbi and buying dollars. So China’s attempt to internationalise the renminbi, which springs from frustration with the dollar trap, paradoxically increases its vast dollar holdings.
This is expensive as well as ironic. Assuming China will one day stop holding down the renminbi’s value, it is sure to rise against the dollar. The more dollars the central bank buys, the greater the portfolio loss it will suffer in the future. Moreover, as the central bank acquires dollars, it pays out renminbi. The resulting monetary stimulus has to be sterilised, creating a further challenge for the authorities.
Of course, China has managed contradictory policies before. But even if China’s leaders muddle through the mess of unintended consequences their policy has wreaked, one thing is surely clear. Far from demonstrating the inevitability of China’s rise, renminbi internationalisation illuminates the country’s fraught fight against a worn-out economic model.
The writer directs the Maurice R. Greenberg Center for Geoeconomic Studies at the Council on Foreign Relations. A longer version of this appears in January’s Foreign Affairs

America’s Pacific Century, Hillary Clinton, Foreign Policy

The future of politics will be decided in Asia, not Afghanistan or Iraq, and the United States will be right at the center of the action.

BY HILLARY CLINTON | NOVEMBER 2011

As the war in Iraq winds down and America begins to withdraw its forces from Afghanistan, the United States stands at a pivot point. Over the last 10 years, we have allocated immense resources to those two theaters. In the next 10 years, we need to be smart and systematic about where we invest time and energy, so that we put ourselves in the best position to sustain our leadership, secure our interests, and advance our values. One of the most important tasks of American statecraft over the next decade will therefore be to lock in a substantially increased investment — diplomatic, economic, strategic, and otherwise — in the Asia-Pacific region.
The Asia-Pacific has become a key driver of global politics. Stretching from the Indian subcontinent to the western shores of the Americas, the region spans two oceans — the Pacific and the Indian — that are increasingly linked by shipping and strategy. It boasts almost half the world’s population. It includes many of the key engines of the global economy, as well as the largest emitters of greenhouse gases. It is home to several of our key allies and important emerging powers like China, India, and Indonesia.
At a time when the region is building a more mature security and economic architecture to promote stability and prosperity, U.S. commitment there is essential. It will help build that architecture and pay dividends for continued American leadership well into this century, just as our post-World War II commitment to building a comprehensive and lasting transatlantic network of institutions and relationships has paid off many times over — and continues to do so. The time has come for the United States to make similar investments as a Pacific power, a strategic course set by President Barack Obama from the outset of his administration and one that is already yielding benefits.

With Iraq and Afghanistan still in transition and serious economic challenges in our own country, there are those on the American political scene who are calling for us not to reposition, but to come home. They seek a downsizing of our foreign engagement in favor of our pressing domestic priorities. These impulses are understandable, but they are misguided. Those who say that we can no longer afford to engage with the world have it exactly backward — we cannot afford not to. From opening new markets for American businesses to curbing nuclear proliferation to keeping the sea lanes free for commerce and navigation, our work abroad holds the key to our prosperity and security at home. For more than six decades, the United States has resisted the gravitational pull of these “come home” debates and the implicit zero-sum logic of these arguments. We must do so again.

Beyond our borders, people are also wondering about America’s intentions — our willingness to remain engaged and to lead. In Asia, they ask whether we are really there to stay, whether we are likely to be distracted again by events elsewhere, whether we can make — and keep — credible economic and strategic commitments, and whether we can back those commitments with action. The answer is: We can, and we will.

Harnessing Asia’s growth and dynamism is central to American economic and strategic interests and a key priority for President Obama. Open markets in Asia provide the United States with unprecedented opportunities for investment, trade, and access to cutting-edge technology. Our economic recovery at home will depend on exports and the ability of American firms to tap into the vast and growing consumer base of Asia. Strategically, maintaining peace and security across the Asia-Pacific is increasingly crucial to global progress, whether through defending freedom of navigation in the South China Sea, countering the proliferation efforts of North Korea, or ensuring transparency in the military activities of the region’s key players.

Just as Asia is critical to America’s future, an engaged America is vital to Asia’s future. The region is eager for our leadership and our business — perhaps more so than at any time in modern history. We are the only power with a network of strong alliances in the region, no territorial ambitions, and a long record of providing for the common good. Along with our allies, we have underwritten regional security for decades — patrolling Asia’s sea lanes and preserving stability — and that in turn has helped create the conditions for growth. We have helped integrate billions of people across the region into the global economy by spurring economic productivity, social empowerment, and greater people-to-people links. We are a major trade and investment partner, a source of innovation that benefits workers and businesses on both sides of the Pacific, a host to 350,000 Asian students every year, a champion of open markets, and an advocate for universal human rights.

President Obama has led a multifaceted and persistent effort to embrace fully our irreplaceable role in the Pacific, spanning the entire U.S. government. It has often been a quiet effort. A lot of our work has not been on the front pages, both because of its nature — long-term investment is less exciting than immediate crises — and because of competing headlines in other parts of the world.

As secretary of state, I broke with tradition and embarked on my first official overseas trip to Asia. In my seven trips since, I have had the privilege to see firsthand the rapid transformations taking place in the region, underscoring how much the future of the United States is intimately intertwined with the future of the Asia-Pacific. A strategic turn to the region fits logically into our overall global effort to secure and sustain America’s global leadership. The success of this turn requires maintaining and advancing a bipartisan consensus on the importance of the Asia-Pacific to our national interests; we seek to build upon a strong tradition of engagement by presidents and secretaries of state of both parties across many decades. It also requires smart execution of a coherent regional strategy that accounts for the global implications of our choices.

WHAT DOES THAT regional strategy look like? For starters, it calls for a sustained commitment to what I have called “forward-deployed” diplomacy. That means continuing to dispatch the full range of our diplomatic assets — including our highest-ranking officials, our development experts, our interagency teams, and our permanent assets — to every country and corner of the Asia-Pacific region. Our strategy will have to keep accounting for and adapting to the rapid and dramatic shifts playing out across Asia. With this in mind, our work will proceed along six key lines of action: strengthening bilateral security alliances; deepening our working relationships with emerging powers, including with China; engaging with regional multilateral institutions; expanding trade and investment; forging a broad-based military presence; and advancing democracy and human rights.

By virtue of our unique geography, the United States is both an Atlantic and a Pacific power. We are proud of our European partnerships and all that they deliver. Our challenge now is to build a web of partnerships and institutions across the Pacific that is as durable and as consistent with American interests and values as the web we have built across the Atlantic. That is the touchstone of our efforts in all these areas.

Our treaty alliances with Japan, South Korea, Australia, the Philippines, and Thailand are the fulcrum for our strategic turn to the Asia-Pacific. They have underwritten regional peace and security for more than half a century, shaping the environment for the region’s remarkable economic ascent. They leverage our regional presence and enhance our regional leadership at a time of evolving security challenges.

As successful as these alliances have been, we can’t afford simply to sustain them — we need to update them for a changing world. In this effort, the Obama administration is guided by three core principles. First, we have to maintain political consensus on the core objectives of our alliances. Second, we have to ensure that our alliances are nimble and adaptive so that they can successfully address new challenges and seize new opportunities. Third, we have to guarantee that the defense capabilities and communications infrastructure of our alliances are operationally and materially capable of deterring provocation from the full spectrum of state and nonstate actors.

The alliance with Japan, the cornerstone of peace and stability in the region, demonstrates how the Obama administration is giving these principles life. We share a common vision of a stable regional order with clear rules of the road — from freedom of navigation to open markets and fair competition. We have agreed to a new arrangement, including a contribution from the Japanese government of more than $5 billion, to ensure the continued enduring presence of American forces in Japan, while expanding joint intelligence, surveillance, and reconnaissance activities to deter and react quickly to regional security challenges, as well as information sharing to address cyberthreats. We have concluded an Open Skies agreement that will enhance access for businesses and people-to-people ties, launched a strategic dialogue on the Asia-Pacific, and been working hand in hand as the two largest donor countries in Afghanistan.

Similarly, our alliance with South Korea has become stronger and more operationally integrated, and we continue to develop our combined capabilities to deter and respond to North Korean provocations. We have agreed on a plan to ensure successful transition of operational control during wartime and anticipate successful passage of the Korea-U.S. Free Trade Agreement. And our alliance has gone global, through our work together in the G-20 and the Nuclear Security Summit and through our common efforts in Haiti and Afghanistan.

We are also expanding our alliance with Australia from a Pacific partnership to an Indo-Pacific one, and indeed a global partnership. From cybersecurity to Afghanistan to the Arab Awakening to strengthening regional architecture in the Asia-Pacific, Australia’s counsel and commitment have been indispensable. And in Southeast Asia, we are renewing and strengthening our alliances with the Philippines and Thailand, increasing, for example, the number of ship visits to the Philippines and working to ensure the successful training of Filipino counterterrorism forces through our Joint Special Operations Task Force in Mindanao. In Thailand — our oldest treaty partner in Asia — we are working to establish a hub of regional humanitarian and disaster relief efforts in the region.

AS WE UPDATE our alliances for new demands, we are also building new partnerships to help solve shared problems. Our outreach to China, India, Indonesia, Singapore, New Zealand, Malaysia, Mongolia, Vietnam, Brunei, and the Pacific Island countries is all part of a broader effort to ensure a more comprehensive approach to American strategy and engagement in the region. We are asking these emerging partners to join us in shaping and participating in a rules-based regional and global order.

One of the most prominent of these emerging partners is, of course, China. Like so many other countries before it, China has prospered as part of the open and rules-based system that the United States helped to build and works to sustain. And today, China represents one of the most challenging and consequential bilateral relationships the United States has ever had to manage. This calls for careful, steady, dynamic stewardship, an approach to China on our part that is grounded in reality, focused on results, and true to our principles and interests.

We all know that fears and misperceptions linger on both sides of the Pacific. Some in our country see China’s progress as a threat to the United States; some in China worry that America seeks to constrain China’s growth. We reject both those views. The fact is that a thriving America is good for China and a thriving China is good for America. We both have much more to gain from cooperation than from conflict. But you cannot build a relationship on aspirations alone. It is up to both of us to more consistently translate positive words into effective cooperation — and, crucially, to meet our respective global responsibilities and obligations. These are the things that will determine whether our relationship delivers on its potential in the years to come. We also have to be honest about our differences. We will address them firmly and decisively as we pursue the urgent work we have to do together. And we have to avoid unrealistic expectations.

Over the last two-and-a-half years, one of my top priorities has been to identify and expand areas of common interest, to work with China to build mutual trust, and to encourage China’s active efforts in global problem-solving. This is why Treasury Secretary Timothy Geithner and I launched the Strategic and Economic Dialogue, the most intensive and expansive talks ever between our governments, bringing together dozens of agencies from both sides to discuss our most pressing bilateral issues, from security to energy to human rights.

We are also working to increase transparency and reduce the risk of miscalculation or miscues between our militaries. The United States and the international community have watched China’s efforts to modernize and expand its military, and we have sought clarity as to its intentions. Both sides would benefit from sustained and substantive military-to-military engagement that increases transparency. So we look to Beijing to overcome its reluctance at times and join us in forging a durable military-to-military dialogue. And we need to work together to strengthen the Strategic Security Dialogue, which brings together military and civilian leaders to discuss sensitive issues like maritime security and cybersecurity.

As we build trust together, we are committed to working with China to address critical regional and global security issues. This is why I have met so frequently — often in informal settings — with my Chinese counterparts, State Councilor Dai Bingguo and Foreign Minister Yang Jiechi, for candid discussions about important challenges like North Korea, Afghanistan, Pakistan, Iran, and developments in the South China Sea.

On the economic front, the United States and China need to work together to ensure strong, sustained, and balanced future global growth. In the aftermath of the global financial crisis, the United States and China worked effectively through the G-20 to help pull the global economy back from the brink. We have to build on that cooperation. U.S. firms want fair opportunities to export to China’s growing markets, which can be important sources of jobs here in the United States, as well as assurances that the $50 billion of American capital invested in China will create a strong foundation for new market and investment opportunities that will support global competitiveness. At the same time, Chinese firms want to be able to buy more high-tech products from the United States, make more investments here, and be accorded the same terms of access that market economies enjoy. We can work together on these objectives, but China still needs to take important steps toward reform. In particular, we are working with China to end unfair discrimination against U.S. and other foreign companies or against their innovative technologies, remove preferences for domestic firms, and end measures that disadvantage or appropriate foreign intellectual property. And we look to China to take steps to allow its currency to appreciate more rapidly, both against the dollar and against the currencies of its other major trading partners. Such reforms, we believe, would not only benefit both our countries (indeed, they would support the goals of China’s own five-year plan, which calls for more domestic-led growth), but also contribute to global economic balance, predictability, and broader prosperity.

Of course, we have made very clear, publicly and privately, our serious concerns about human rights. And when we see reports of public-interest lawyers, writers, artists, and others who are detained or disappeared, the United States speaks up, both publicly and privately, with our concerns about human rights. We make the case to our Chinese colleagues that a deep respect for international law and a more open political system would provide China with a foundation for far greater stability and growth — and increase the confidence of China’s partners. Without them, China is placing unnecessary limitations on its own development.

At the end of the day, there is no handbook for the evolving U.S.-China relationship. But the stakes are much too high for us to fail. As we proceed, we will continue to embed our relationship with China in a broader regional framework of security alliances, economic networks, and social connections.

Among key emerging powers with which we will work closely are India and Indonesia, two of the most dynamic and significant democratic powers of Asia, and both countries with which the Obama administration has pursued broader, deeper, and more purposeful relationships. The stretch of sea from the Indian Ocean through the Strait of Malacca to the Pacific contains the world’s most vibrant trade and energy routes. Together, India and Indonesia already account for almost a quarter of the world’s population. They are key drivers of the global economy, important partners for the United States, and increasingly central contributors to peace and security in the region. And their importance is likely to grow in the years ahead.

President Obama told the Indian parliament last year that the relationship between India and America will be one of the defining partnerships of the 21st century, rooted in common values and interests. There are still obstacles to overcome and questions to answer on both sides, but the United States is making a strategic bet on India’s future — that India’s greater role on the world stage will enhance peace and security, that opening India’s markets to the world will pave the way to greater regional and global prosperity, that Indian advances in science and technology will improve lives and advance human knowledge everywhere, and that India’s vibrant, pluralistic democracy will produce measurable results and improvements for its citizens and inspire others to follow a similar path of openness and tolerance. So the Obama administration has expanded our bilateral partnership; actively supported India’s Look East efforts, including through a new trilateral dialogue with India and Japan; and outlined a new vision for a more economically integrated and politically stable South and Central Asia, with India as a linchpin.

We are also forging a new partnership with Indonesia, the world’s third-largest democracy, the world’s most populous Muslim nation, and a member of the G-20. We have resumed joint training of Indonesian special forces units and signed a number of agreements on health, educational exchanges, science and technology, and defense. And this year, at the invitation of the Indonesian government, President Obama will inaugurate American participation in the East Asia Summit. But there is still some distance to travel — we have to work together to overcome bureaucratic impediments, lingering historical suspicions, and some gaps in understanding each other’s perspectives and interests.

EVEN AS WE strengthen these bilateral relationships, we have emphasized the importance of multilateral cooperation, for we believe that addressing complex transnational challenges of the sort now faced by Asia requires a set of institutions capable of mustering collective action. And a more robust and coherent regional architecture in Asia would reinforce the system of rules and responsibilities, from protecting intellectual property to ensuring freedom of navigation, that form the basis of an effective international order. In multilateral settings, responsible behavior is rewarded with legitimacy and respect, and we can work together to hold accountable those who undermine peace, stability, and prosperity.

So the United States has moved to fully engage the region’s multilateral institutions, such as the Association of Southeast Asian Nations (ASEAN) and the Asia-Pacific Economic Cooperation (APEC) forum, mindful that our work with regional institutions supplements and does not supplant our bilateral ties. There is a demand from the region that America play an active role in the agenda-setting of these institutions — and it is in our interests as well that they be effective and responsive.

That is why President Obama will participate in the East Asia Summit for the first time in November. To pave the way, the United States has opened a new U.S. Mission to ASEAN in Jakarta and signed the Treaty of Amity and Cooperation with ASEAN. Our focus on developing a more results-oriented agenda has been instrumental in efforts to address disputes in the South China Sea. In 2010, at the ASEAN Regional Forum in Hanoi, the United States helped shape a regionwide effort to protect unfettered access to and passage through the South China Sea, and to uphold the key international rules for defining territorial claims in the South China Sea’s waters. Given that half the world’s merchant tonnage flows through this body of water, this was a consequential undertaking. And over the past year, we have made strides in protecting our vital interests in stability and freedom of navigation and have paved the way for sustained multilateral diplomacy among the many parties with claims in the South China Sea, seeking to ensure disputes are settled peacefully and in accordance with established principles of international law.

We have also worked to strengthen APEC as a serious leaders-level institution focused on advancing economic integration and trade linkages across the Pacific. After last year’s bold call by the group for a free trade area of the Asia-Pacific, President Obama will host the 2011 APEC Leaders’ Meeting in Hawaii this November. We are committed to cementing APEC as the Asia-Pacific’s premier regional economic institution, setting the economic agenda in a way that brings together advanced and emerging economies to promote open trade and investment, as well as to build capacity and enhance regulatory regimes. APEC and its work help expand U.S. exports and create and support high-quality jobs in the United States, while fostering growth throughout the region. APEC also provides a key vehicle to drive a broad agenda to unlock the economic growth potential that women represent. In this regard, the United States is committed to working with our partners on ambitious steps to accelerate the arrival of the Participation Age, where every individual, regardless of gender or other characteristics, is a contributing and valued member of the global marketplace.

In addition to our commitment to these broader multilateral institutions, we have worked hard to create and launch a number of “minilateral” meetings, small groupings of interested states to tackle specific challenges, such as the Lower Mekong Initiative we launched to support education, health, and environmental programs in Cambodia, Laos, Thailand, and Vietnam, and the Pacific Islands Forum, where we are working to support its members as they confront challenges from climate change to overfishing to freedom of navigation. We are also starting to pursue new trilateral opportunities with countries as diverse as Mongolia, Indonesia, Japan, Kazakhstan, and South Korea. And we are setting our sights as well on enhancing coordination and engagement among the three giants of the Asia-Pacific: China, India, and the United States.

In all these different ways, we are seeking to shape and participate in a responsive, flexible, and effective regional architecture — and ensure it connects to a broader global architecture that not only protects international stability and commerce but also advances our values.

OUR EMPHASIS ON the economic work of APEC is in keeping with our broader commitment to elevate economic statecraft as a pillar of American foreign policy. Increasingly, economic progress depends on strong diplomatic ties, and diplomatic progress depends on strong economic ties. And naturally, a focus on promoting American prosperity means a greater focus on trade and economic openness in the Asia-Pacific. The region already generates more than half of global output and nearly half of global trade. As we strive to meet President Obama’s goal of doubling exports by 2015, we are looking for opportunities to do even more business in Asia. Last year, American exports to the Pacific Rim totaled $320 billion, supporting 850,000 American jobs. So there is much that favors us as we think through this repositioning.

When I talk to my Asian counterparts, one theme consistently stands out: They still want America to be an engaged and creative partner in the region’s flourishing trade and financial interactions. And as I talk with business leaders across our own nation, I hear how important it is for the United States to expand our exports and our investment opportunities in Asia’s dynamic markets.

Last March in APEC meetings in Washington, and again in Hong Kong in July, I laid out four attributes that I believe characterize healthy economic competition: open, free, transparent, and fair. Through our engagement in the Asia-Pacific, we are helping to give shape to these principles and showing the world their value.

We are pursuing new cutting-edge trade deals that raise the standards for fair competition even as they open new markets. For instance, the Korea-U.S. Free Trade Agreement will eliminate tariffs on 95 percent of U.S. consumer and industrial exports within five years and support an estimated 70,000 American jobs. Its tariff reductions alone could increase exports of American goods by more than $10 billion and help South Korea’s economy grow by 6 percent. It will level the playing field for U.S. auto companies and workers. So, whether you are an American manufacturer of machinery or a South Korean chemicals exporter, this deal lowers the barriers that keep you from reaching new customers.

We are also making progress on the Trans-Pacific Partnership (TPP), which will bring together economies from across the Pacific — developed and developing alike — into a single trading community. Our goal is to create not just more growth, but better growth. We believe trade agreements need to include strong protections for workers, the environment, intellectual property, and innovation. They should also promote the free flow of information technology and the spread of green technology, as well as the coherence of our regulatory system and the efficiency of supply chains. Ultimately, our progress will be measured by the quality of people’s lives — whether men and women can work in dignity, earn a decent wage, raise healthy families, educate their children, and take hold of the opportunities to improve their own and the next generation’s fortunes. Our hope is that a TPP agreement with high standards can serve as a benchmark for future agreements — and grow to serve as a platform for broader regional interaction and eventually a free trade area of the Asia-Pacific.

Achieving balance in our trade relationships requires a two-way commitment. That’s the nature of balance — it can’t be unilaterally imposed. So we are working through APEC, the G-20, and our bilateral relationships to advocate for more open markets, fewer restrictions on exports, more transparency, and an overall commitment to fairness. American businesses and workers need to have confidence that they are operating on a level playing field, with predictable rules on everything from intellectual property to indigenous innovation.

ASIA’S REMARKABLE ECONOMIC growth over the past decade and its potential for continued growth in the future depend on the security and stability that has long been guaranteed by the U.S. military, including more than 50,000 American servicemen and servicewomen serving in Japan and South Korea. The challenges of today’s rapidly changing region — from territorial and maritime disputes to new threats to freedom of navigation to the heightened impact of natural disasters — require that the United States pursue a more geographically distributed, operationally resilient, and politically sustainable force posture.

We are modernizing our basing arrangements with traditional allies in Northeast Asia — and our commitment on this is rock solid — while enhancing our presence in Southeast Asia and into the Indian Ocean. For example, the United States will be deploying littoral combat ships to Singapore, and we are examining other ways to increase opportunities for our two militaries to train and operate together. And the United States and Australia agreed this year to explore a greater American military presence in Australia to enhance opportunities for more joint training and exercises. We are also looking at how we can increase our operational access in Southeast Asia and the Indian Ocean region and deepen our contacts with allies and partners.

How we translate the growing connection between the Indian and Pacific oceans into an operational concept is a question that we need to answer if we are to adapt to new challenges in the region. Against this backdrop, a more broadly distributed military presence across the region will provide vital advantages. The United States will be better positioned to support humanitarian missions; equally important, working with more allies and partners will provide a more robust bulwark against threats or efforts to undermine regional peace and stability.

But even more than our military might or the size of our economy, our most potent asset as a nation is the power of our values — in particular, our steadfast support for democracy and human rights. This speaks to our deepest national character and is at the heart of our foreign policy, including our strategic turn to the Asia-Pacific region.

As we deepen our engagement with partners with whom we disagree on these issues, we will continue to urge them to embrace reforms that would improve governance, protect human rights, and advance political freedoms. We have made it clear, for example, to Vietnam that our ambition to develop a strategic partnership requires that it take steps to further protect human rights and advance political freedoms. Or consider Burma, where we are determined to seek accountability for human rights violations. We are closely following developments in Nay Pyi Taw and the increasing interactions between Aung San Suu Kyi and the government leadership. We have underscored to the government that it must release political prisoners, advance political freedoms and human rights, and break from the policies of the past. As for North Korea, the regime in Pyongyang has shown persistent disregard for the rights of its people, and we continue to speak out forcefully against the threats it poses to the region and beyond.

We cannot and do not aspire to impose our system on other countries, but we do believe that certain values are universal — that people in every nation in the world, including in Asia, cherish them — and that they are intrinsic to stable, peaceful, and prosperous countries. Ultimately, it is up to the people of Asia to pursue their own rights and aspirations, just as we have seen people do all over the world.

IN THE LAST decade, our foreign policy has transitioned from dealing with the post-Cold War peace dividend to demanding commitments in Iraq and Afghanistan. As those wars wind down, we will need to accelerate efforts to pivot to new global realities.

We know that these new realities require us to innovate, to compete, and to lead in new ways. Rather than pull back from the world, we need to press forward and renew our leadership. In a time of scarce resources, there’s no question that we need to invest them wisely where they will yield the biggest returns, which is why the Asia-Pacific represents such a real 21st-century opportunity for us.

Other regions remain vitally important, of course. Europe, home to most of our traditional allies, is still a partner of first resort, working alongside the United States on nearly every urgent global challenge, and we are investing in updating the structures of our alliance. The people of the Middle East and North Africa are charting a new path that is already having profound global consequences, and the United States is committed to active and sustained partnerships as the region transforms. Africa holds enormous untapped potential for economic and political development in the years ahead. And our neighbors in the Western Hemisphere are not just our biggest export partners; they are also playing a growing role in global political and economic affairs. Each of these regions demands American engagement and leadership.

And we are prepared to lead. Now, I’m well aware that there are those who question our staying power around the world. We’ve heard this talk before. At the end of the Vietnam War, there was a thriving industry of global commentators promoting the idea that America was in retreat, and it is a theme that repeats itself every few decades. But whenever the United States has experienced setbacks, we’ve overcome them through reinvention and innovation. Our capacity to come back stronger is unmatched in modern history. It flows from our model of free democracy and free enterprise, a model that remains the most powerful source of prosperity and progress known to humankind. I hear everywhere I go that the world still looks to the United States for leadership. Our military is by far the strongest, and our economy is by far the largest in the world. Our workers are the most productive. Our universities are renowned the world over. So there should be no doubt that America has the capacity to secure and sustain our global leadership in this century as we did in the last.

As we move forward to set the stage for engagement in the Asia-Pacific over the next 60 years, we are mindful of the bipartisan legacy that has shaped our engagement for the past 60. And we are focused on the steps we have to take at home — increasing our savings, reforming our financial systems, relying less on borrowing, overcoming partisan division — to secure and sustain our leadership abroad.

This kind of pivot is not easy, but we have paved the way for it over the past two-and-a-half years, and we are committed to seeing it through as among the most important diplomatic efforts of our time.

SUBJECTS: U.S. FOREIGN POLICY, STATE DEPARTMENT, SOUTH ASIA, EAST ASIA, SOUTHEAST ASIA

Hillary Clinton is U.S. secretary of state.

Fragile China, Financial Times

December 1, 2011 10:39 pm

Fragile China

Over the past decade, the idea of a “Chinese slowdown” has come to seem like an oxymoron. The data on manufacturing activity, which Beijing released on Thursday, show this is no longer the case. The official purchasing managers’ index fell to 49 in November. For the first time since February 2009, the sector is experiencing a decline and the future looks no brighter. Economists at UBS expect year-on-year GDP growth to drop to 7.7 per cent at the start of next year, a sharp decline on this year’s expected 9.3 per cent.

The reason is partly domestic. Although construction has held up, property sales have dropped sharply and developers are delaying new projects. This means that the construction boom may be near its end.

Just as important, however, is the crisis in the eurozone. Beijing’s growth model is still largely export-led and its main trade partner is the European Union. For all the talk of an Asian decoupling, the Chinese and European economies remain closely intertwined.

To address the downturn, the government has loosened its monetary policy. The reserve ratio was cut by 0.5 percentage points. This meant injecting Rmb400bn ($63bn) into the banking system, in the hope that credit would trickle down to lenders. This is unlikely to have a dramatic effect and is anyway misdirected. The money most likely will not reach the smaller enterprises upon which a recovery must depend.

The worry is that the slowdown may encourage Beijing to go for another stimulus package similar to the one in 2009 and to abandon its intention to let the renminbi appreciate, in the hope of protecting domestic exporters.

Both measures would be counterproductive. A new stimulus would reinflate real estate prices, which Beijing is rightly trying to bring under control. It might also spark fresh consumer price inflation. With food prices rising by 12 per cent a year, this is a real worry. Moreover, holding the renminbi down would simply put more pressure on already struggling economies in Europe and the US, undermining their flagging ability to absorb Chinese goods.

A better way forward would be for Beijing to find non-monetary ways of fostering domestic consumption. That means continuing to let the renminbi appreciate, while directing any fiscal stimulus in the direction of households.

A switch to a new growth model would clearly benefit the world economy. But it would be in China’s interests, too.

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China Bashing on the Campaign Trail, BusinessWeek

Politics & Policy November 17, 2011, 5:00 PM EST
China Bashing on the Campaign Trail

Presidential candidates love to talk tough about Beijing—until they get elected

By Joshua Green

The Republican Presidential candidates routinely excoriate President Obama, and his dealings with China are no exception. In recent GOP debates, Obama’s would-be successors have jockeyed over who, as President, would come down most forcefully on Beijing. Mitt Romney has worked up the sharpest rhetoric, saying the Chinese are “stealing our jobs” and calling them “cheaters” and “currency manipulators” conducting a trade war against the U.S. Romney has made it known that his administration would take a much harder line on everything from currency issues to intellectual property rights. “We’re going to stand up to China,” he vowed in the Nov. 12 debate in South Carolina.

That kind of talk resonates with voters, especially in a weak economy. But would Romney’s election, or anybody else’s, bring meaningful changes in U.S. policy? Don’t bet on it. Castigating the White House as weak on China—while promising to be much tougher—is a tradition among Presidential aspirants of both parties that stretches back for decades. Rarely do they follow through once in office.

In 1980, Ronald Reagan sharply criticized President Jimmy Carter’s decision to break off diplomatic relations with Taiwan, suggesting he would reestablish ties and sell Taiwan advanced fighter jets. But as President, Reagan declared U.S.-China relations a “strategic imperative” to balance Soviet influence and did not strike a deal for the planes. In 1992, Bill Clinton inveighed against the “butchers of Beijing,” and as President issued an executive order demanding China improve its human-rights record as a condition for most favored nation status. The Chinese didn’t budge. In the face of pressure from the U.S. business community, which feared a trade war, Clinton relented and let the order lapse. He eventually normalized relations with China and helped pave the way for its entry into the World Trade Organization. In 2000, George W. Bush attacked Clinton for treating China as a “strategic partner” rather than a “strategic competitor.” Bush, too, ultimately chose to engage Beijing after the 9/11 attacks rather than heed the wishes of neoconservatives in his Administration who favored confrontation. “In each case, the candidate pursued very different policies than he advocated during the campaign, and in fact pursued policies than were substantially indistinguishable from those of his predecessor,” says Jeffrey Bader, until recently senior director for East Asian affairs at the U.S. National Security Council and now a scholar at the Brookings Institution in Washington.

Romney and his colleagues have many good reasons to ignore this history. For one thing, China looms in the minds of many unhappy voters, particularly in hard-hit Rust Belt states. “If you ask people who is our major economic competitor, they’ll say China,” says Pete Brodnitz, a Democratic pollster at the Benenson Strategy Group. “There’s a broad sense that we’re losing ground to the Chinese, that we’re sending jobs there, and that they undercut us on price while producing inferior products. That is a source of great frustration.”

As a result, China has growing salience as an electoral issue. In 2010, Democrats successfully cited the damage to the U.S. manufacturing base wrought by free trade with China to win a special congressional election in Pennsylvania, a bright spot in an otherwise lousy year. The Democratic Senatorial Campaign Committee was particularly aggressive, running television ads that featured the sound of a gong to invoke foreign menace. Republicans quickly caught on. “China is a visceral thing,” says John Brabender, a veteran strategist and ad maker from Pittsburgh who is working for another outspoken Republican Presidential hopeful, Rick Santorum. “I don’t recall seeing any ads about Russia lately, but there are plenty of ads about China.”

Of course, there are legitimate grievances to be addressed: manipulation of the yuan; the theft of intellectual property; the pressure put on American companies doing business in China to transfer technology; a September trade deficit of $28 billion. The trouble is that threatening China won’t resolve any of them. As Clinton likes to say, “When was the last time you got tough on your banker?” And U.S. politicians often exaggerate what confrontation might achieve. For instance, China’s allowing the yuan to float would probably redistribute jobs to other Southeast Asian countries, but it would not return them to Pennsylvania or Ohio.

The lesson that new Presidents since Richard Nixon have learned is that China is a more difficult problem than it appears from the safe distance of the campaign trail. That’s why, for all their clamor as candidates, actual Presidents rarely attempt the dramatic changes they campaign on. “If you look at Presidents from Nixon to Obama, you find overwhelming continuity of policy, save for a few years after Tiananmen Square,” says Bader.

Obama in now trying to find the right balance. In 2008 he criticized Bush for attending the opening ceremony of the Beijing Olympics. As President, he adopted a typically measured policy toward China. Campaigning for a second term, he’s recently made a point of tussling with Chinese President Hu Jintao over currency rates at the recent APEC Summit in Hawaii.

The clearest explanation for this behavior comes, oddly enough, from another Republican Presidential candidate: former Utah Governor and Ambassador to China Jon Huntsman. “You can get an applause line by saying that you’re going to go to war with China,” he told Bloomberg Television on Nov. 14. “That you’re going to slap a tariff, without remembering that you’ve got [to work with China on] North Korea. You’ve got to work on Iran sanctions. You’ve got Pakistan. You’ve got global economic rebalancing. You’ve got the South China Sea. You’ve got a host of issues that are all part of the U.S.-China relationship. And a trade war would grind it all to a halt, killing small businesses and exporters in this country.” He regards Romney’s chest-thumping as a “total pander”—a view widely shared in Washington—and cut a commercial (“Trade War”) decrying it.

Huntsman’s grasp of China policy plainly exceeds everybody else’s in the field. But it’s Romney who better grasps the electoral politics. In a campaign that will be fought over the economy, he understands China is as much an issue of domestic economics as foreign policy. Any poll will ratify the significance of that insight: Romney is the front-runner, and Huntsman is languishing in single digits.

The bottom line: Candidates from Reagan to Romney have bashed China to get votes. But Presidents rarely take on Beijing once they assume office.

Green is senior national correspondent for Bloomberg Businessweek in Washington.

Experts: Pushing for yuan rise will not help US economy, China Daily

Updated: 2011-11-15 07:56

By Zhang Yuwei (China Daily)

HONOLULU – When the appreciation of the Chinese yuan was raised at a panel discussion of the Asia-Pacific Economic Cooperation CEO Summit in Hawaii, business leaders had a simple message for politicians: Pressing China to appreciate its currency will only harm economic relations between the two largest economies in the world.

That general sentiment was in keeping with what Chinese President Hu Jintao told his US counterpart, President Barack Obama, at the summit.

During the meeting, Hu said the US’ trade deficits, high unemployment rate and other economic troubles cannot be blamed on the Chinese renminbi’s exchange rate. He said a sharp increase in the currency’s value will do nothing to help the US overcome those difficulties.

Hu said China has acted responsibly in adopting its current exchange-rate policy and will continue to make reforms to its currency system.

At the CEO summit, which was attended by more than 600 CEOs, US and Chinese business leaders noted the US will hold a presidential election next year and said much of the talk about the yuan has been driven by politics.

Mitt Romney, a Republican candidate for president, has called China a “currency manipulator”, saying that China has undervalued its currency and is taking away American jobs.

Many American business leaders have a different opinion.

Dennis Nally, chairman of the professional-services firm PricewaterhouseCoopers International, said politicians who regularly discuss the value of the yuan often neglect to ask an important question.

“What are the consequences of moving aggressively to deal with that currency issue?” he said. “That’s part of the conversation that needs to be taken in total and that is just an isolation.”

The renminbi has appreciated by 7 percent against the US dollar since June 2010 and by 30 percent since 2005. The US’ trade deficit, or the difference between the value of its exports and its imports, meanwhile continues to rise.

In contrast to what some say, many experts argue the renminbi’s appreciation will not lead to new jobs for the US but rather for Vietnam and other places where labor costs are low.

Captain Wei Jiafu, chairman of China Ocean Shipping Company Group one of the largest shipping companies in the world said the US made an “unreasonable request” by asking the Chinese to make the renminbi appreciate.

He noted that China has loaned the US large amounts of money through the purchase of US bonds. A sharp rise in the value of the renminbi, he said, would be unfair to China, because that would cause the debt to be repaid in dollars that are worth relatively less.

China, the US’ largest creditor, holds $1.14 trillion in US treasuries bond, according to US Treasury Department data.

Wei said a sharp appreciation in the renminbi will hurt both Chinese and American businesses in China.

“It will hurt US companies in China because they will sell in devalued American dollars and spend appreciated renminbi,” said Wei.

“If the renminbi appreciates fast, it will not only harm China’s exports and cause more unemployment in China, but it will also harm the economic relations that exist between the two countries.”

Wei, whose company has helped bring employment opportunities to 9,000 Americans since 2002, said US leaders should loosen the limits they have placed on exports of high-technology to China and invite more Chinese companies to invest in their country.

Wei said renminbi appreciation should be discussed in a reasonable way, without paying great attention to political matters. He said the approaching US presidential election is one of the reasons why the currency issue has drawn so much interest lately.

In October, the US Senate voted 63 to 35 in favor of a bill that, if made into law, will allow the government to impose duties on exports from countries that are found to be manipulating the value of their currencies.

Speaking at the summit, Thomas Donohue, president and CEO of the US Chamber of Commerce, said he holds opinions about the currency issues that are different from some that are found in Congress and the Obama Administration.

“There is no question that over time China has to resolve, and it is gradually, the balance of the value of its currency,” Donohue said. “China’s resolution of the currency issue should be evolutionary, not revolutionary, because China’s fundamental interest is keeping hundreds of millions of people employed.”

China Daily