News Analysis

Rift Grows as U.S. and China Seek Differing Goals

By EDWARD WONG

Published: February 19, 2010

Yet, to some Chinese Mr. Obama’s support of the Dalai Lama represents something more troubling and disrespectful. The meeting, while low-profile, and the routine announcement last month of American arms sales to Taiwan, were taken as the latest signs that despite China’s rapid ascent, the American government still refused to compromise on issues that China considered sacrosanct: matters of sovereignty and territorial integrity.

On Friday, the Chinese Foreign Ministry called in Jon M. Huntsman Jr., the American ambassador here, to lecture him on the Dalai Lama, the exiled spiritual leader of the Tibetans, whom China considers a separatist.

“At this time, China and the U.S. cannot find any agreement on strategic issues,” said Yan Xuetong, director of the Institute of International Studies at Tsinghua University.

Few American officials would disagree. The rift in United States-China relations has arisen in part because the two countries have completely different items at the top of their foreign policy agendas and are talking past each other, American officials say.

They say that China emphasizes sovereignty issues while refusing to give any weight to the Obama administration’s two top priorities in the relationship: containing Iran’s nuclear ambitions and rebalancing currencies and trade. The Americans have also highlighted issues of Internet censorship and security.

“There’s not a lot of overlap in the Venn diagram,” an American official involved in China policy said on the condition of anonymity, following diplomatic protocol. “What’s really the most worrisome is the degree to which we have that disconnect.”

Those tensions are likely to worsen in coming months as domestic pressures in each country push the governments to assert their agendas more boldly, and as China’s confidence in its economic system continues to grow.

On the American side, a struggling economy is forcing the Obama administration to make currency valuation and market liberalization top priorities. With an unemployment rate of nearly 10 percent and midterm elections coming up, American officials are aware that pushing China to raise the value of its currency, the renminbi, and allowing American companies greater access to some Chinese markets could be important political victories for Mr. Obama and his party.

“We’ve got to look at the risk of a more populist American public and the U.S. Congress deciding that China is the reason our economy isn’t growing enough,” the American official said.

Economists say the renminbi is undervalued by 25 to 40 percent, a wider gap than at any other time since 2005, when, under pressure from the Bush administration, China decided to allow the renminbi to float in a narrow band against the dollar and other currencies. The renminbi appreciated 21 percent, but has not moved at all since July 2008. This month, Ma Zhaoxu, a Foreign Ministry spokesman, rejected an unusually public call by Mr. Obama for China to revalue its currency, saying that “the value of the renminbi is getting to a reasonable and balanced level.”

The problem for the Americans is that job creation is also a priority for the Chinese government, because the legitimacy of the Communist Party is based largely on economic growth. A year ago, when the global recession resulted in a severe slump in exports, Chinese officials said 20 million migrant workers lost their jobs. The export industry in China is only now starting to recover, and the low value of the renminbi is crucial for Chinese companies selling goods abroad.

“With economic and trade issues, we’re in for a very difficult year,” said Kenneth G. Lieberthal, a scholar at the Brookings Institution who worked on China policy in the Clinton administration. “I see Chinese protectionism growing on the ground as well as on the U.S. side, with midterm elections coming up.”

But some economists say China is likely to let the renminbi rise by about 5 percent to help stave off inflation, a growing concern among Chinese policy makers. Historically, high inflation has stirred unrest in China.

Economists say the Obama administration and European allies can press China to revalue the renminbi by threatening to impose more tariffs on manufactured goods. Last fall, the American government imposed tariffs on Chinese tires and steel pipes. European officials have privately said that China’s increasingly unyielding stance on issues like human rights has made it politically easy for European governments to toughen up on tariffs.

Michael Pettis, a professor of finance at Peking University, said he expected the Chinese government to raise the value of the renminbi by a few percent by the spring. But raising the value too quickly could lead to widespread bankruptcies among manufacturers here, he said.

“China must recognize the pressures on the other countries, but the other countries need to recognize that China will not be able to adjust quickly,” he said.

Iran’s nuclear program is the other top priority for the White House. China says it does not support economic sanctions against Tehran, despite widespread suspicions that Iran wants to create nuclear weapons. So the question for the Obama administration is how to ensure that China will not block a United Nations Security Council vote on sanctions. Iran is a major supplier of oil to China, and China balks at siding with Western nations against Muslim governments, partly because its officials are sensitive to ethnic unrest by Uighur Muslims in western China.

“China just doesn’t see Iran as part of its core national interest, except for the fact that Iran collects a lot of natural resources for them,” the American official involved in China policy said.

But Russia, which had previously opposed sanctions, has been showing signs of reaching the limits of its tolerance with Iran, and the White House hopes that China will give in if Russia supports sanctions. Despite China’s newfound confidence, the American official said, China still does not want to be seen as a lone spoiler on major global issues.

“Eventually,” he said, “the Chinese will cave once they’ve gone as far as they can go without looking like they’re the ones blocking all this.”


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