No, it is not a threat to America, at least nowhere close to what you’d think from reading Instapuppy and Bill Gertz. But the real threat could be a political one affecting the countries of East Asia, according to this Asia Hand.
The China threat is a constant refrain when traveling in China or when discussing U.S. engagement with Asia. While we shouldn’t ignore the modernization of China’s military, that shouldn’t be a primary concern. Rather, the real challenge is Beijing’s ambitions in East Asia: The real “China threat” is political.
While declarations of national strategy should always be viewed with suspicion — matching ends and means is difficult and events usually intervene to interrupt grand designs — there is no disguising China’s determination to establish itself as the dominant power in Asia and to supplant the U.S. role in the region.
Beijing has done an excellent job of defining the terms of engagement with other countries in East Asia. During the 1990s, it pursued “smile diplomacy,” forging a new relationship with Southeast Asia by signing a declaration of a Code of Conduct for the South China Sea, acceding to ASEAN’s Treaty of Amity and Cooperation and moving forward with an ASEAN-China Free Trade Agreement. In Northeast Asia, China has put itself at the heart of the diplomatic process to resolve the North Korean nuclear crisis. In doing so, it has focused on South Korean reaction and now appears to take many of its cues from Seoul. Increasingly, South Koreans see themselves more closely aligned with China than the U.S.
Beijing has worked hard to assuage Asian concerns about its long-term intentions. It has settled border disputes, engaged in aggressive diplomatic outreach, put itself at the heart of the regional economy and made substantial efforts to demonstrate that it is a reliable partner. Implicit in Chinese policy is the message that it understands Asian concerns better than Washington, and that it manages Asian issues better than does the U.S.
The challenge for Washington is responding to this situation correctly: U.S. policy must not strengthen China’s hand and a hard line will do just that. Asian nations have no desire to be forced to choose between Washington and Beijing. Many regional governments are skeptical about Chinese intentions, but they also know that China is a geographical fact of life. The U.S. cannot increase tensions without reinforcing the Chinese message that Beijing understands Asia better than the U.S. and that it can manage the region better than Washington.
The U.S. cannot block or stop China’s emergence. Containment isn’t a realistic option. The challenge for the U.S. is to match China and engage Asia as a responsible partner. U.S. Deputy Secretary of State Robert Zoellick acknowledged as much in his recent tour of Southeast Asia. The challenge is to engage China as it rises, to help it deal with the many difficulties it will encounter, to encourage Beijing to be a responsible and productive member of international society, and to invigorate relations with Asia so that there are no doubts about the U.S. commitment to the region. Doing so will neutralize “the China threat,” and build a constructive bilateral relationship that benefits both countries and Asia as a whole
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I bolded the sentence above because it struck me as somewhat simplistic. It’s a nice idea to “encourage Beijing” to be responsible, but they have to want to be responsible. We just encouraged Beijing to revalue the yuan, and they did, but it was a meaningless gesture because they really didn’t want to, so they basically pulled a little trick. Can we encourage a regime like the CCP’s to be a good international citizen? Doesn’t that require the CCP to possess a fundamental understanding of human rights, business ethics and rule of law first?
1
By Bing
Richard,
If you don’t agree engagement, I’m very interested in what you think the US should do.
Just wish all you could come up with is not based on the premise of overthowing CCP.
July 23, 2005 @ 1:08 pm | Comment
2
By richard
Oh, I absolutely do agree in engagemnet. I am just wondering if it’s possbile to achieve the writer’s goals through encouragement and coaching. It just seems idealistic to me, considering how ruthless the CCP can be.
July 23, 2005 @ 1:49 pm | Comment
3
By renxu
Richard,
I can understand why you are mad on CCP. I am not happy with them on many things either (their proganpda machines, corruption, SAR, etc). But China is big and different from the west, we can not remake China in our own images. I think people from outside need to acknowledge that China is a country in rapid transition. As it develops, it will has political system that is more acceptable to most americans.
Your example for chinese currency peg to the US dollar, I am afraid, is not a good example. The peg was there for more than 10 years and it was good to both the US and CHina for many years.
The curreny peg has provided stability to chinese economy; so why they should mess up with the success. The chinese curreny is undervalue relatively because the US dollar declined in value in the last two years. The politians here blame China on this to hide their domestic policy failure; and any knowledged people know that.
July 23, 2005 @ 3:47 pm | Comment
4
By Laowai 19790204
Couldn’t have said it better myself renxu. the US was lazy, which is why it’s in this mess now.
July 23, 2005 @ 4:08 pm | Comment
5
By pete
Who is China Hand? It reads like he has professional experience as a Asia Watcher. Knowledgeable to say the least.
But I agee with Richard that China won’t look to the US as a mentor or coach and it won’t stand for it publically. The Chinese need for control won’t let them However, China will listen and it will take ideas that it thinks are helpful on its desired journey to revived greatness.
July 23, 2005 @ 4:40 pm | Comment
6
By pete
oops. Strike that first graf.
July 23, 2005 @ 4:43 pm | Comment
7
By richard
Renxu, as you proably know, no one is faster to criticize the US government than I am. I’m no economist. but I did believe the low yuan was being used by China to give them a disctinctly unfair advantage in selling exports on the cheap. That may have been easier for us to swallow while China was just getting on its feet, but not now, when the world is much more copmpetitive. Atleast that’s how I see it; I’m always willing to re-evaluate my postion on this, as it’s something I’m no expert in.
July 23, 2005 @ 5:41 pm | Comment
8
By renxu
Richard,
I am not an expert on economy issue either. I would like to take back the line “any knowledged people know that”; but like to keep my view points on the chinese currency issue unless I am convinced otherwise. Now that China has removed the peg, it should smooth the relationship a little bits, although temporarily.
July 23, 2005 @ 6:37 pm | Comment
9
By richard
No problem, renxu – thanks for being gracious.
I hesitate to put up posts like this because I lack confidence talking about economics. My main goal in posting stuff like this is to hear what others have to say so I can learn. I did get the strong impression that what China finally did this week was very disappointing in that it was more a gesture to show “Well, at least we did something,” while it made virtually no difference in terms of making things fairer. But then, America has done plenty of unfair things when it comes to trade, from cotton, steel and other subsidies to imposing asinine sanctions as we do against Cuba.
July 23, 2005 @ 6:49 pm | Comment
10
By renxu
I agree. In reality, most nations, just like human beings, are selfish. The US was the least in this aspect tradtionally, helping rebuild must of aisa and europe after world war 2.
I think that there will be some more movements on chinese currency before chinese president Hu visist the US this September (the government is always good at doing this sort of things, releasing one or two political prisoners, etc.).
July 23, 2005 @ 7:09 pm | Comment
11
By Bing
Richard
Every country behaves for its own interest.
If US thinks undervalued yuan is giving China an unfair advantage, then they could just do the same, undervalue your own dollar! Or you can just peg your dollar to yuan.
If you have valid reason not to do it, why can’t we have valid reason to do it?
Do we always have to play your rules? Yeah, for now we may have to, but you gotta admit this is totally about ecnomical hegemony.
July 23, 2005 @ 7:22 pm | Comment
12
By renxu
Tough on China makes people feel good and vent their anger. China is not Soviet Union and containment will not work. No asian or european countries will go along with the containment path. To asian countries, China is nearby and will always be there while US is far away and may leave one day. So they don’t want to deal with the mess. I also question that, even if the US wants to contain China, whether it has the capacity to do so. Although China needs the US more than the other way around, our leverage over China has been dinimishing over the years.
July 23, 2005 @ 7:24 pm | Comment
13
By richard
Bing I’m not sure I’m going to agree. It was fiercely unfair when Bush imposed his steel tariffs — and our competitors couldn’t do a damned thing about it but cry foul. Same with supports for cotton and other American commodities. Are you saying you believe tariffs and subsidies are fair if they help us, and that other countries should just figure out their own way out? Is that how you envision free trade? Just asking.
July 23, 2005 @ 7:37 pm | Comment
14
By richard
The US wants to contain everyone so we can continue being the lord of the universe. Not surprising and it’s like every other country looking out for its own best interest. Not good, not fair. But human nature.
July 23, 2005 @ 7:42 pm | Comment
15
By Bing
Richard,
I didn’t say anything about tariffs or subsidies. I’m no economist but as I understand they are totally different thing with currency pegging.
The only sin we have is that we hoarded too many dollars.
As a savage, Friday had no idea of slavery and refused to work for Crusoe. Crusoe then gave him one coin a day and explained to him that you should work since you are paid.
After running out of coins taken from the wreck, Friday again refused to work and demanded Crusoe work to earn his coin.
Crusoe told Friday: the coins in a savage’s hands does not have the same power as in a civilized man’s. In a word, you can’t pay the coins for me to work.
Friday killed Crusoe…
July 23, 2005 @ 8:02 pm | Comment
16
By richard
Bing, sorry if I jumped to a conclusion. I thought you were saying countries should act in their own best interest and do whatever they can to succeed in the marketplace, and that other countries should then have to find their own solutions.
I think I’m gonna stick to social/political issues., Economics sucks.
July 23, 2005 @ 8:13 pm | Comment
17
By Bing
Richard,
Don’t be sorry.
Honestly, all I said about any social/political/ecnomic issues., I don’t mind others treating them as bullshit, for quite often I myself have no idea what I’m bluffing about, especially in English, and at 3:24am.
July 23, 2005 @ 8:25 pm | Comment
18
By Matt
The Yuan peg gave China growth at the expense of her neighbors. China doesn’t want to revalue because factories can easily move to other SE Asian nations, and China has a severe lack of jobs.
I still think the best policy is not to treat China negatively, just treat democracies like India better. Trade deals should go to them first, military cooperation, etc. Do not antagonize China, give and take at the same time. Thanks to U.S. democracy there is the pro-China lobby and the anti-China lobby. Use each when necessary, that is diplomacy.
The U.S. will always have a place in Asia, because let’s face it: if China and the U.S. are both superpowers, and you’re Vietnam or Malaysia, which country do you think will ask more of you?
Why do you think the Baltics and Poland want a strong American presence in Europe?
July 23, 2005 @ 11:02 pm | Comment
19
By Martyn
Re the Yuan. It’s dead simple. Does anyone truly believe that China would stick to the decade old dollar peg if it DIDN’T carry some advantage for the motherland?
Perhaps we can say that compared to Clinton (who left Bush a fantastic economy) Bush’s deficit is up for criticism. HOWEVER, the US economy can absorb these things. Remember that 2 of the US’s most rock-solid allies, Japan and Britain hold a large amount of that deifcit.
If the dollar peg was hurting the China economy before then China would have dropped it like a hot potatoe.
Three simple reasons why they kept with the peg: (1) It provided stability and kept the Yuan off the international market. (2) It allowed Chinese export preices to remain below what they should have been and (3) It gives the incompentant, poorly managed and insolent Chinese state banks time to get their act together.
July 24, 2005 @ 4:14 am | Comment
20
By Martyn
Agree Matt above 100%.
Also, I’d be much happier if US FDI went to US allies. Not for paranoid hawkish reasons, just common courtesy that’s all.
July 24, 2005 @ 4:16 am | Comment
21
By JFS
Martyn, I do not quite agree with you on your analysis is some specifics.
Let me begin with the US economy. Clinton’s economic state only had an appearance of being in solid good condition, but already serious problems were in process. First, beginning in the mid 1990s the money supply increased significantly. That is not good. Second, the Clinton adminstration, along with the Fed central bank, promoted a cheap money easy credit scheme. This helped feed investments into the USA, but unfortunately the wrong investments (dot.com boom, perhaps housing boom now?).
The reason I bring this up is because the cheap money was funded mainly by Japan and China (from surplus current accounts). This is important. Because that gave China a way to keep their currency undervalued. Being undervalued, they received a big hunkering surplus current accounts. If they put that surplus into the local economy, the inflation would have become just as big. Not good for any economy, especially not goof for PR with its own people. But since the USA wanted a lot of money (albeit low interest), then they had a good place to put their surplus and keep their economy going.
No matter what claptrap the politicians were saying, the relationship was mutually satifying at the time. Of course, such a relationship could not remain for ever, and it would have unraveled when the interest payments for the surplus the USA paid to china was too high and required America to cut back on its imports. No exports to USA, no need to buy cheap debt instruments, etc. But even before that happens, politics comes up (as it has now).
There is nothing wrong for the United States to help other economies, which is what they are dong on purpose. But the USA cannot do this on their own as their share of the world’s GDP declines (because other countries wealth increases). So the USA needs to put their house in order first. They need to let the interest rate be market driven (instead of letting the Fed make that determination), they need to reduce government expenses, they need to reduce the debt, and they need to reduce the transactional cost of doing business in the USA. But no one wants to do that right now, neither on the left nor on the right.
July 24, 2005 @ 7:28 am | Comment
22
By renxu
Matt/Martyn,
The strategy of ganging up with other countries against China will not work. Take India for example, it like to have better relationsip with the US for its own benefits; but it is not going to do it at the expense of its relationship with China. After all, these countries know very well that, for its own inretests, the US is also developing closer and closer relationship with China.
As to the investment money, it will go the the place where it can make the most bucks. It is what capitalism is all about.
July 24, 2005 @ 10:03 am | Comment
23
By renxu
JFS wrote,
“So the USA needs to put their house in order first. They need to let the interest rate be market driven (instead of letting the Fed make that determination), they need to reduce government expenses, they need to reduce the debt, and they need to reduce the transactional cost of doing business in the USA. But no one wants to do that right now, neither on the left nor on the right”
Exactly. The polititians in the US are not doing their jobs. They could have a late-night emergency session to debate the matter of Sherry Shivos, but they refused to talk about the real problems the US is facing. Blaming others, no matter how successful it is, won’t solve a real problem.
July 24, 2005 @ 10:16 am | Comment
24
By Matt
I didn’t say to gang up on China. The U.S. should not. But while it treats China nicely, it should treat other countries even nicer. The point is to make it clear to China that peace and democracy will get you a lot more.
July 24, 2005 @ 10:31 am | Comment
25
By Bing
“The point is to make it clear to China that peace and democracy will get you a lot more.”
Sounds like a wholehearted American marine handing out sweets to ignorant rogue pupil.
Good manners for one bar of chocolate, Obedience for two, otherwise nothing.
July 24, 2005 @ 11:03 am | Comment
26
By Martyn
JFS, nothing you say takes anything away from my original/main points:
“(1) It provided stability and kept the Yuan off the international market. (2) It allowed Chinese export preices to remain below what they should have been and (3) It gives the incompentant, poorly managed and insolent Chinese state banks time to get their act together.”
Renxu:
No one is ganging up on China. Don’t be paranoid. Capitalism rules…even in Communist Party-ruled China. I just said the US should be nice to its allies. Much the same way China is to its, er, the other contries it deals with.
July 24, 2005 @ 1:18 pm | Comment
27
By JFS
martyn,
Yes, your main points are taken, but the specific dynamics are different, which gives a different rational for the relationship between China and the USA
July 24, 2005 @ 5:44 pm | Comment
28
By pete
Bing:
A sarcastic remark like yours in response to Matt really ignores or just shows how little you know about economics and development.
July 24, 2005 @ 9:43 pm | Comment
29
By Conrad
Whenever the subject of economics comes up around here, I brace myself the the inevitable idiocy. Today Bing provides it.
The whole entire point of the discussions, negotiations and arguments has been that China WAS ALREADY PEGGING the Yuen to the dollar at an artificially low rate.
Furthermore, neither the world nor the US economy could function properly were it possible, which it isn’t, to peg the world reserve currency — the US dollar — at an artificial level and certainly not to an un-convertable currency like the Yuen.
China has bee able to keep its currency artificially low because it does not allow in to be freely convertible. That option is simply not possible for the dollar or the Euro and, were anyone deranged enough to attempt it, chaos would ensue.
July 24, 2005 @ 10:00 pm | Comment
30
By GWBH
First thanks to Conrad for putting Bing’s economic comments in their proper light.
Second Bing: Crusoe survives the book and is not killed by Friday.
Third: The US interest rates are determined by market forces the Fed only sets Fed Funds Rate which is the overnight rate between depository institutions. The rest of the interest rate curve is determined in the open market via T-bill/note/bond trading and the spread to treasuries is determined by the trading of corporates.
I’m not sure that the peg has been removed. The articles I’ve read refer to a basket of currencies but I’ve been unable to determine which currencies and what the respective weights are
July 24, 2005 @ 11:21 pm | Comment
31
By Bing
Conrad / GWBH
I’m not sure what you were arguing about?
Of couse I knew China was already pegging yuan to dollar.
To your surprise, I understood why US can’t do that too.
That’s why I said: if US dollar has the valid reason for floating, China yuan has the similarly valid reason for pegging. If pegging will harm US’s economy, floating could do the same to China.
Crusoe survives the book and is not killed by Friday, but who knows if he could survive the reality?
July 25, 2005 @ 2:13 am | Comment
32
By Bing
pete,
“A sarcastic remark like yours in response to Matt really ignores or just shows how little you know about economics and development.”
A comment like this shows little you know about economics and development too.
July 25, 2005 @ 2:17 am | Comment
33
By Johnny K
I got a C+ in Econ.
…well at least that puts me ahead of W…oh and Kerry too.
I shall refrain from making inflammatory and self-righteous rhetoric in fields about which I know little, and macroeconomics is definitely one of those fields.
July 27, 2005 @ 10:55 am | Comment