Saturday, 13 December 2008
Time for the lecturer to become the lectured
Oh, what a difference 30 years - or even two years - can make. When China got rid of class struggle and world revolution after the death of Mao Zedong and opted for economic development, it was a willing student of the West, especially of the United States, on how to run a market economy.
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Time for the lecturer to become the lectured
By FRANK CHING
12 December 2008
Oh, what a difference 30 years - or even two years - can make. When China got rid of class struggle and world revolution after the death of Mao Zedong and opted for economic development, it was a willing student of the West, especially of the United States, on how to run a market economy.
Two years ago, when the United States and China launched the strategic economic dialogue - a high-level forum held every six months alternately in Beijing and in Washington headed on the American side by Treasury Secretary Henry Paulson - virtually half the American Cabinet went to China to meet their counterparts. At that time, the emphasis was on educating China.
As Mr. Paulson said in his opening statement in Beijing on Dec 13, 2006: ‘Over the next two days, we will discuss a number of issues surrounding China’s economic development strategy and the challenges that China faces . . . My colleagues and I also welcome the opportunity to share lessons from our own experience with social safety nets, labour mobility, and transparent and flexible fiscal spending to address income inequality.’
Last week, the fifth session of the dialogue was held. This time, even before the start of the Dec 4-5 dialogue, the official People’s Daily in its online edition said: ‘It is the first time that China and the US are able to break free from the controversies over the renminbi exchange rate, intellectual property rights, market access and trade deficit. In the past dialogues, the US put forward various requirements and standards for China, from the opening of capital markets to currency convertibility, which, according to the US, would help China’s economic growth. However, the current financial meltdown has dealt a heavy blow to US confidence, and made the growth pattern of American finance capitalism questionable.’
In this latest session, it was clear that now the shoe was on the other foot; China felt free to lecture the US. Thus, Zhou Xiaochuan, governor of the People’s Bank of China, asserted: ‘The United States should speed up domestic adjustment, raise its savings rate and reduce its trade and fiscal deficits.’
And Vice-Premier Wang Qishan, leader of the Chinese delegation, exhorted the US to stabilise its economy as soon as possible to ‘ensure the safety of China’s assets and investments in the United States’.
Actually, the Chinese central banker must know that if Americans accepted his advice to increase savings, they would have to cut spending, which would have an adverse impact on the Chinese economy since the US is the biggest market for Chinese exports.
This new-found Chinese sense of confidence was already evident six months ago, at the fourth round of the dialogue, when the sub-prime lending crisis had already emerged. At that time, Mr. Zhou said that while in the past China had learned useful lessons from the US, now it was learning from American mistakes, not just its successes.
The latest Chinese statements show the dilemma in which Beijing finds itself. On the one hand, it wants to increase its exports; on the other hand, it knows that the huge trade surpluses that it enjoys with the US are not sustainable and that if the American economy is not fixed, then China’s investments - in particular, the US$750 billion in Treasury bonds that it holds - may be at risk.
But the current financial crisis in the US has undoubtedly caused China to rethink its own policies. It must be thanking its lucky stars that it has kept its financial markets relatively closed and so has not been severely contaminated by the sophisticated products exported by the US to European and other countries.
Still, both sides believe that the economic dialogue is useful. In fact, they expressed the hope that the incoming Obama administration would continue this high-level economic exchange between China and the US.
This fifth round of the economic dialogue was held just weeks before President George W Bush steps down. The sixth China-US Strategic Dialogue is being held between Chinese State Councillor Dai Bingguo and US Deputy Secretary of State John Negroponte.
Both these dialogues should be continued by the Obama administration. Relations between the US and China are among the most important bilateral relationships in the world in the 21st century. It would be a mistake to break either one of these two important strands of the relationship.
Both countries - and the world - would benefit from an improved understanding of each other.
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