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Mr Hu goes to Washington

How US and China manage relations matters to the world

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Business Standard New Delhi
Last Updated : Jan 20 2013 | 1:43 AM IST

The impact of Chinese President Hu Jintao’s state visit to the United States and of his meetings with US political and business leadership has wide-ranging portents, both bilaterally and globally. The visit comes at a time of global economic uncertainty and rising political tension in East Asia. The US is finding its diktat as the sole “superpower” being challenged by an increasingly assertive China, emboldened by mind-boggling economic growth and political clout. The trajectory of future US-China relations portends more than any comparable bilateral relationship and is expectedly being watched with a mixture of curiosity and fear. President Hu and President Barack Obama sought correctly to calm sentiments that have been increasingly confrontational in recent times. Bilateral tensions, however, continue to simmer and cannot be expected to go away in a hurry. US-China trade has grown from a measly $10 billion in 1979 to $459 billion in 2010, with China running a surplus of $273 billion. The trade surplus with the US and EU allows China to run a deficit with much of East and Southeast Asia, and still maintain an overall trade surplus, estimated to be $183 billion in 2010. This trend seems to be growing inexorably, despite US counter-measures such as selective tariffs, anti-dumping lawsuits and sustained pressure from political and business lobbies for China to allow more easy access to US companies.

China has steadfastly resisted pressure to let the renminbi appreciate, arguing that it is doing enough. A high level of export-dependence suggests China would baulk at allowing a sharp appreciation of its currency, even though an undervalued renminbi hobbles its progress towards a more domestic consumption-driven economy. On the other hand, China depends significantly on the American market for its exports and would suffer in more than one way if the dollar were to plunge. Recent trade discourse between the US and China is increasingly dominated by the frustration at US companies being restricted in accessing China’s burgeoning domestic market. China has been increasingly obstructing the participation of foreign firms through measures like a more aggressive “technology for markets” policy, subsidies to domestic firms, and the so-called “indigenous” policies, wherein intermediate goods that were imported and assembled in China are now being produced domestically, besides a variety of administrative controls intended to discourage foreign firms’ access to the domestic market. A trade war will have global ramifications and is clearly something that both parties are eager to avoid.

Chinese industrial policy has undergone a paradigm shift since the turn of the century, with the goal of emerging as an innovation-led economy by 2020. The transition from mass-manufacturing to innovation is not proving easy, but nobody can fault China’s intensity and determination to emerge as a leading technological power over the next two decades. To this end, China has invested massively in upgrading its scientific and technological infrastructure, putting its war chest of $2.7 trillion in forex reserves to good use. Despite the challenges, this drive if taken to fruition can place China directly in competition with the West. How the US and China manage this would be anxiously watched by the entire world.

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First Published: Jan 21 2011 | 12:15 AM IST

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