Strategic Economic Dialogue

The meeting of American and Chinese political heavyweights in mid- December 2006, was a refreshing reminder of how China is mis-perceived by America. The American delegation to Beijing included seven cabinet secretaries, and the head of the U.S. Federal Reserve, to lobby and bully China.While America came to lecture China on currency revaluation and market theories that will benefit China, America and the world, China aired its call for America to reform its own economy and end its addiction to Chinese goods and loans that sustain humongous U.S. trade and budget deficits. The Chinese have, and always will, prefer gradualism. After all, they are the biggest economic experiment in history. Transforming a highly centralized state-controlled economy into a market economy, and transforming an export-driven economy to a consumer-driven economy that affects a quarter of the world’s population, many of whom live on less than a dollar a day is, to say the least, a challenge. China is not a threat to America. It is its most important ally if it is to survive, thrive and continue to guide in the 21st-century.

U.S. politicians received a Chinese power point history lesson on the country’s 5000 year history of poverty, colonial subjugation and civil wars ─ which I also discuss in chapter two. Americans don’t know or understand China.

China has to maintain an investment growth of around 20 per cent per annum if it is to avoid a crash landing and implode ─ with devastating global implications, especially in America. Americans must keep in mind that China’s per capita GDP is only slightly higher than $1,000, while the per capita GDP in America is nearly $4,000. This while China’s reliance on external demand is growing. The ratio between trade turnover and gross domestic product jumped 72 per cent in the first three quarters of 2006, from 63.9 per cent in 2005, 59.8 percent in in 2004, 51.9 percent in 2003 and 42.7 percent in 2002.

America must keep in mind that the Chinese government is beholden to China’s vast export sector, which accounts for more than one-third of China’s economy. Letting the yuan float upward could massively weaken the export-driven economy and create political instability. For example, the textile industry alone supports 90 million workers but makes miniscule profits. The consequence of millions of textile workers being unemployed or the government extending more subsidies to the textile industries while it is trying to reform its market economy will have a devastating political impact.

The first Sino-U.S. strategic economic dialogue addressed long-term concerns and agreed to:

· Establish New York Stock Exchange and NASDAQ offices in China;
· Enhance bilateral contacts to push for a successful resolution of the Doha round of international talks;
· Establish a working group to discuss opening the Chinese services sector to competition and investment;
· Launch talks to encourage protection of investor rights in each country;
· Reinvigorate discussions within a joint committee on commerce and trade to improve transparency and intellectual property protection;
· China will formally participate in the American FutureGen renewable energy project, which receives large subsidies from the U.S. government;
· The two sides also signed an agreement facilitating financing to support U.S. exports to China and agreed to relaunch bilateral air services negotiations;
· Each side also agreed to take measures to address global imbalances. Both reaffirmed commitments to pursuing macroeconomic policies. China to carry out exchange rate reform and U.S. will increase savings rates to promote balanced and strong growth;
· The Chinese also agreed to help the Motion Picture Association of America and other groups do more to tackle copyright piracy on the internet.

America also gave China the green light to join the Inter-American Development Bank. In return, China signed an $8 billion contract to buy four nuclear power plants from U.S. based Westinghouse. The deal creates 5,500 U.S. jobs, and is a solid concrete first step in reducing America’s trade deficit with China. Westinghouse also agreed to transfer technology to China that could be used in the construction of more nuclear reactors in China during the next 15 to 20 years. It’s a pity Westinghouse is owned by Japan’s Toshiba. However, the two day confab failed to produce any short-term solutions to the schizoid Sino-U.S. relationship, other than meeting again in Washington in May 2007.