G-2

The China and U.S. agreement at the conclusion of the 5th Strategic Economic Dialogue talks in Beijing earlier this month to give traders of both countries $20 billion in trade financing credit to boost bilateral commerce is the first right step in the direction of upgrading the SED to a G-2 biannual summit between the two countries. The export-import banks of America and China will offer $12 billion and $8 billion respectively to credit worthy importers in developing countries.
The U.S. also said it would support China joining the Financial Stability Forum, a club of central banks and finance ministries from the world’s richest nations.

After president-elect Obama’s election victory, the Chinese congratulatory message emphasized that China is ready to strengthen its relationship with the U.S. and further promote friendly and constructive cooperation. Obama agreed with China’s president Hu that the development of Sino-U.S. relations is not only in the interest of countries, but the interests of the world. Let’s hope he sticks to that agreement and brings about the necessary “change” in U.S.-China relations and doesn’t get his mind changed by Congress. Any treaty with China requires a two-thirds vote by the Senate, a potential hurdle with Democrats retaining their overwhelming majority.

Why not elevate the biannual SED meetings to the presidential level and make them G-2 meetings? Why not make them even stronger? America and China must step up their dialogue and cooperation in areas of trade, energy, environmental protection, food safety and military cooperation and sign a mutually beneficial bilateral treaty governing their relationship in these areas.

The China challenge is first and foremost, really about money and military might. Energy and the other geopolitical issues are secondary. The other side benefits of a bilateral treaty are that it would allow U.S. firms to invest in China’s industrial sector and allow U.S. firms in China to settle disputes by international arbitration rather than subject them to the arbitrary rule of law that currently exists in domestic Chinese courts. In turn, China would have an incentive to improve its legal system and to better protect private property rights and intellectual property.

With a U.S. federal budget deficit that could reach $1 trillion in Obama’s first year in office, a national debt of more than $10 trillion that requires more than $2 billion a day just to stay afloat, with China owning over half-a-trillion dollars in U.S. government bonds ─ more than any other country and Washington’s continued need for China to buy more ─ how many other options does America have to finance its national debt and the $700 billion financial industry bailout? America can’t just “spend” its way out of the financial crisis alone. It desperately needs a long term partner that can help it.

Giving China greater recognition would also send a strong signal that the U.S. is not opposed to China’s peaceful rise, prosperity and ability to invest in or buy U.S. companies the way it attempted to do in 2005, when China National Offshore Oil Corp tried to acquire Unocal, a U.S. oil and gas company for $18 billion, much more than it was eventually sold to Chevron for. America would also affirm its confidence in a policy of engagement and its distrust for protectionism. That would be good for America, China and the world.