Practical Economics


China: Cooling It Until Next Spring?

Art Pine

Despite the flap over Chinese dissident Chen Guangcheng, relations between Beijing and Washington are visibly better than they were in 2010 and 2011.



Both the U.S. and Chinese governments want to put the diplomatic debacle over blind Chinese activist Chen Guangcheng behind them. And there's good reason to think they will succeed.

For the Obama administration, the November election looms, and the Chen incident gives GOP candidate Mitt Romney an opening to criticize Obama on foreign affairs -- a task that was proving difficult before. For its part, Beijing faces a crucial party congress this fall that will pick its top leaders for the next decade. The new team will take office in March but probably won't have its policies set until May.

To be sure, unexpected tension between the two powers is always possible. China traditionally has reacted sharply to anything it perceives as a provocation by the United States -- particularly U.S. military aid to Taiwan and American intervention in cases related to human rights.

But the past week's negotiations over Chen's fate suggest that the two sides can work out such problems if they really want to. China initially negotiated Chen's exit from the U.S. Embassy early in the week and then went along with a tentative arrangement for him to visit the U.S. to attend law school.

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The two sides made incremental progress at a long-scheduled economic parley held just after the Chen incident flared. And this week, despite the series of embarrassments for both sides in the Chen affair, China's defense minister is visiting U.S military leaders here -- the first such trip in nine years.

Chen aside, there's been modest progress on an array of issues, both economic and geopolitical -- particularly compared with 2010 and 2011, which saw crusty relations on both sides.

Beijing has been letting the value of its currency rise. Adjusted for inflation, the yuan has climbed about 13% against the U.S. dollar since 2010. And China announced in April that it would widen the range within which the yuan can be traded each day from 0.5% to 1%. Both steps are modest, but in the right direction.

China also has made it easier for foreigners to put money into its stock market and other financial instruments; increased the limit on investment from abroad; begun to allow free trading of the yuan beyond its own borders; and eased controls on Chinese companies' investing overseas.

Moreover, China's current account surplus -- the broadest measure of trade -- has fallen to 2.8% of its annual economic output, down from 8% in 2008, and predictions are that it will fall to 2.3% this year. At the same time, the U.S.' current account deficit has shrunk -- to 3.1% of its annual economic output, from 5.1% before.

Although China still hasn't shifted to an economy propelled mainly by domestic consumption rather than by exports, as the U.S. would like, its policymakers are aware of that need and have committed themselves to bringing about such a realignment. Beijing took some modest steps in that direction at last week's conference.

Things are even looking somewhat better on the geopolitical side. China has begun supporting limited United Nations efforts to rein in Iran, Syria and North Korea. It has stopped threatening to impede the use of global sea-lanes -- though it's still challenging the Philippines and Vietnam over disputed territories in the South China Sea.

How much progress will be made remains to be seen, and what happens between now and next spring could set the tone for U.S.-China relations for the medium term. Tensions may well reemerge after the new Chinese leadership (and possibly, a new American president) comes to power. China's progress on U.S. complaints has ranged from symbolic to modest; problems remain. China's new leadership may turn out to be more confrontational than the current regime. For now, however, from the U.S.' point of view, the lower key, the better.



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