In my post South China Disputes: Encirclement of China, I described China’s unrequited love. I said that in spite of China’s efforts and sacrifice in the case of Libya (where it has suffered huge loss due to support for US policy), the US has neglected China’s courting and started to encircle China.
China began to seek alliance with Russia, and has successfully broken the encirclement with Russia’s help in its relations with India and in easing tension with Vietnam.
However, according to the Kanwa Defence Review of Canada, China’s People’s Liberation Army (PLA) regards the US as its number one imaginary enemy and has drawn up a strategy to defeat the U.S.
China seems to have resumed its courting of the US in the recent annual U.S.-China Strategic & Economic Dialogue. It has made many major concessions in the dialogue.
– It has committed to move to a market-determined exchange rate for its yuan currency.
– It has pledged to better protect against trade secret misappropriation through strengthened enforcement;
– It promised to liberate its financial sector:
- Foreign banks and securities firms will be allowed to directly trade government bond futures and sell them to foreign and domestic institutional investors; and
- It also welcomes participation by foreign firms in corporate bond underwriting and pledged to facilitate further evaluations of interested underwriters for participation in this market; and
– It has for the first time pledged to ensure that enterprises of all forms of ownership have equal access to resources, such as energy, land, and water, and to develop a market-based mechanism for determining the prices of those inputs.
The US should be pleased that China is an autocracy, as all these concessions are very harmful to strong vested interests in China. If China had a congress where vested interests were as strong as those in the US Congress, the President who made such concessions would be in great trouble.
When Jiang Zemin, the core of the CCP Dynasty, and Zhu Rongji, a heavyweight of Jiang’s Shanghai faction, tried hard to enter the WTO, there was prediction that China would lose in its competition with powerful foreign transnational enterprises, and that SOEs would be in great trouble and Chinese banks would bankrupt.
The opposition at home was especially fierce, but Jiang and Zhu had confidence in the talents of Chinese entrepreneurs and SOE executives. China has greatly benefited by its entry to the WTO.
Now, all those concessions are what China must do in its further economic reform, which I referred to as the fourth round of economic liberalisation in my previous posts.
Hu Jintao and Wen Jiabao wanted to carry out such a reform, but have not made much progress due to great resistance from vested interests.
The concessions that China has promised indicate Xi Jinping‘s and Li Keqiang’s firm determination to carry out the reform vigorously in spite of the resistance. For Xi and Li, there are no concessions at all. They are all what Xi and Li have planned to do. It is not China’s resumption of courting the US.
I believe that China will adopt the strategy pointed out in my post South China Sea Disputes: Chinese Strategy, that will maintain good relations with the US while forming an alliance with Russia to help Russia become a rival to the US in the future.
The following is the full text of a Reuters report:
China agrees to currency, procurement reforms in talks with U.S.
China acknowledged U.S. concerns about cyber theft of intellectual property and trade secrets and agreed to steps that would open its financial and government procurement markets, the U.S. Treasury Department said on Friday.
In a statement on outcomes of the annual U.S.-China Strategic & Economic Dialogue that concluded Thursday in Washington, the Treasury Department also said China had committed to move to a market-determined exchange rate for its yuan currency.
“During the S&ED, Chinese officials acknowledged U.S. concerns over the growing problem of the cyber-enabled theft of trade secrets and business confidential information,” the statement said.
“China pledged to better protect against trade secret misappropriation through strengthened enforcement,” it added, referring to an issue that Washington has made a top priority with China as U.S. economic losses from intellectual property theft mounted.
Previous U.S. efforts to get Beijing to address the issue of hacking into American networks to steal intellectual property had met denials and a tendency by China to conflate cyber espionage with cyber-enabled trade secret theft.
Fugitive spy agency contractor Edward Snowden’s disclosure of U.S. surveillance programs compounded the difficult for Washington in raising the issue.
China’s commitment in the talks to move to a market-determined exchange rate for its currency “is a critical part of China’s efforts to rebalance its economy,” Treasury said.
A market-based exchange rate “will both reorient Chinese production towards goods for domestic residents and strengthen the purchasing power of the growing Chinese middle class,” it added.
U.S. politicians and labour groups have long accused China of suppressing the value of the yuan, or renminbi, to make Chinese exports cheaper.
Treasury noted that the renminbi had appreciated by over 16 percent against the dollar in inflation-adjusted terms since June 2010 and had gained 35 percent against the U.S. unit since 2005.
China’s financial sector liberalisation offers included a pledge that locally-incorporated foreign banks and securities firms will be allowed to directly trade government bond futures and sell them to foreign and domestic institutional investors.
“China also welcomed participation by foreign firms in corporate bond underwriting and pledged to facilitate further evaluations of interested underwriters for participation in this market,” Treasury said. No implementation timetable was given.
Treasury said China would submit a revised government procurement agreement offer to the World Trade Organisation by the end of the year, and begin technical talks with the United States this summer to tackle the remaining obstacles to China’s accession to the WTO Government Procurement Agreement.
China’s previous four GPA offers, the latest in late 2012, did not pass muster with U.S. and European trade partners eager for access to China’s vast public procurement market. The issue has been a major sticking point with trade partners since China joined the WTO in 2001.
China’s heavy subsidies to its state-owned firms, which give them advantages over foreign competitors, was another longstanding U.S. complaint that was addressed in the S&ED.
“China for the first time pledged to ensure that enterprises of all forms of ownership have equal access to inputs, such as energy, land, and water, and to develop a market-based mechanism for determining the prices of those inputs,” Treasury said.
“This will help level the playing field for domestic and foreign enterprises competing with Chinese SOEs (State-Owned Enterprises) that often pay below market cost for their inputs,” the statement added.
The July 10-11 talks were led by Treasury Secretary Jack Lew and Deputy Secretary of State Bill Burns and Chinese co-chairs Deputy Premier Wang Yang and State Councilor Yang Jiechi.
The two countries agreed on Thursday to restart stalled negotiations on a bilateral investment treaty, with Beijing dropping previous efforts to exclude its service sector and other areas from any treaty.
U.S. business groups gave the investment treaty announcement a guarded welcome, saying it was something they had long sought but noting the politically difficult reforms required by China to open so many sectors. Any treaty would also require approval by the U.S. Senate, where many lawmakers have a sceptical view of China’s economic policies.
Source: Reuters – China agrees to currency, procurement reforms in talks with U.S.
- Is China too big to fail? (chinadailymail.com)
- China commits in U.S. talks to more currency flexibility -Treasury (xe.com)
- UPDATE 1-U.S., China relaunch talks on investment treaty (xe.com)
- UPDATE 2-U.S., China to relaunch talks on investment treaty (xe.com)
- Lew Calls Progress on China Investment Treaty a ‘Breakthrough’ – Bloomberg (bloomberg.com)
- U.S.-China talks cover cyber issues, currency, Chinese reform (reuters.com)
- China ready to negotiate investment treaty with US (news.yahoo.com)
- Biden says China cyber-theft must stop (news.yahoo.com)
- China ready to negotiate investment treaty with US (mysanantonio.com)
- Biden: China’s rise is good, cybertheft must stop (news.yahoo.com)
- House, Senate Trade Leaders Send Letter to Administration on U.S.-China Strategic & Economic Dialogue (democrats.waysandmeans.house.gov)