Friday, May 27, 2005

Richard Holbrooke: China Does Matter

In today’s column in the Washington Post, ex Asst Sec of State for East Asian and Pacific Affairs Richard Holbrooke kindly echoes the fundamental theme of this blog—that “China Matters” but too few people pay attention:

China's gradual emergence as a political player on the world stage comes when there is a growing impression among other countries in East Asia that Washington is not paying the region sufficient attention…The challenge is obvious, but the lack of clear focus at the highest levels in Washington on our vital national security interests in the region is disturbing.

Actually, Holbrooke is hinting that the wrong people are paying sufficient attention to the region, listing the various interest groups that all share domestic political clout and strong but irreconcilable views on relations with China:

What vastly complicates U.S. relations with China is that every major foreign policy issue between the two countries is also a domestic matter, with its own lobbying groups and nongovernmental organizations ranging across the entire American political spectrum, from human rights to pro-life, from pro-Tibet to organized labor. The bilateral agenda, even a partial one, is daunting: Taiwan, Tibet, human rights, religious freedom, press freedom, the Falun Gong, slave labor, North Korea, Iran, trade, the exchange rate, intellectual property rights, access to Chinese markets, export of sensitive technology and the arms embargo.

In other words, without strong professional leadership (Holbrooke is probably thinking of pin-striped heroes of the State Department like himself), our China policy will be driven by the disparate imperatives of dingbats, do-gooders, and opportunists, and chaos, failure, and damage to American interests will result.

Perhaps Holbrooke’s column was inspired by the spectacle of Treasury Secretary Snow’s rather embarrassing performance on the Chinese yuan revaluation, no doubt at the command of Karl Rove, who is concerned about the political backlash among core Republican groups at the trade deficit with China.

To capture the lede in the hometown papers, Snow first made thundering noises about how the Chinese currency must be reformed, but then admitted a full float was impossible, and finally made it clear he was just begging for a cosmetic shift from the hard 8.3 yuan-to-the-dollar peg—allowing a narrow fluctuation in the yuan and which would have no significant impact on the trade deficit—so President Bush could pretend his administration’s disorganized and distrusted foreign affairs apparatus could claim a victory in its dealings with China.


IJ said...

China Hand,

You suggest that too much attention is focused on minor matters. In the WP article, the former assistant secretary of state of the US is quoted saying:

"two huge factors put the relationship [between China and the US] under constant pressure: first, substantially different attitudes toward the rights of people to express themselves freely and, second, the massive trade imbalance."

All administrations have their own views on economics, of course. Some of these views will be discussed at the G8 economic summit (China is not a member) in Scotland next month - the London 'Times' had an interesting article a couple of weeks ago.

The newspaper ventures that a good start would be for the UK to invite China to join the G8 grouping. "China would be asked to accept the responsibilities that go with full membership of the global monetary system, above all full co-operation in the management of a global system of floating exchange rates." I wonder how China would react.

IJ said...

Perhaps this blog summarises the stance of China on exchange rates. They are against floating rates.

More generally, however, would China be prepared to accept the responsibilities that go along with full membership of a global monetary system?

IJ said...

The China Daily adds to the debate on exchange rates:

>Nobel economics laureate Robert Mundell . . . said Friday there is no reason for China to change its much-criticized currency peg to the US dollar. . . "China has had a dollar anchor for over 10 years, and it's a winning policy."<

>He echoed an argument made by a number of other prominent economists, such as US Federal Reserve Chairman Alan Greenspan and fellow Nobel Prize-winner Joseph Stiglitz. They contend that while a revaluation would make Chinese goods more expensive in the US, American consumers would just buy imports from other low-cost countries instead. In that case the US trade deficit with China might fall, but the size of its overall trade deficit would not.<

China Hand said...

Thanks for your comments, ij. I look at the G8 as a mechanism for the big national players with open financial markets to protect their interests and promote the smooth functioning of the international financial system. Since China doesn't have open financial markets, I can't see them joining the G8 as doing anything more than giving the free market nations another venue in which to beat on China for its closed financial markets and protectionist policies. If there's a carrot for China that goes with that stick, please let me know. Best,
China Hand

IJ said...

China Hand,

My original question was: would China be prepared to accept the responsibilities that go along with full membership of a global monetary system?

You helpfully commented:
"Since China doesn't have open financial markets, I can't see them joining the G8 as doing anything more than giving the free market nations another venue in which to beat on China for its closed financial markets and protectionist policies. If there's a carrot for China that goes with that stick, please let me know."

China has been appointed to an important leadership position in 2005 - the chair of the G20 . The G20 was created in 1999 on the recommendation of the G7, who were looking for a more representative discussion forum for economics. Its members account for over 90% of GDP, 80% of trade, and two-thirds of population in the whole world; the membership consists of the G7 countries, Russia, 11 others and the EU. Such is evolution.

From the website:
"without the emerging-market countries the G-7's legitimacy and influence are constrained when dealing with issues which relate to development in the overall international economic and financial system. Moreover, the financial balance of payments crises in the mid and late 1990s revealed the shortcomings of the existing procedures for crisis prevention and resolution. The creation of the G-20 was designed to meet the need for closer cooperation between industrial and emerging-market countries."

China can surely best act as chair of the G20 if it agrees to participate in, and be bound by, the G8. Open financial markets may not be the way ahead for the global economy - my earlier comments here show there is debate on whether we should have flexible or fixed exchange rates. But let's hear the arguments.

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