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China’s clout grows as U.S. economy weakens

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MEMPHIS, Tenn. — After 9/11 when China sided with the United States in the war on terrorism, Chinese leaders expected a quid pro quo: Perhaps Washington might make some concessions on the “Taiwan issue.” But then U.S. Secretary of State Colin Powell emphatically dismissed this idea.

In 2005, the China National Offshore Oil Corporation made a bid to buy the American oil company Unocal. It also looked at Maytag. This created a furor and members of Congress and other national leaders sharply criticized China. China withdrew the offers. In 2008, the media and human rights groups in the U.S. assailed China over events in Tibet while China was getting ready to hold the Olympics. Some American officials even advocated boycotting the Olympic Games. The situation appears very different now. What a difference a day makes — or more accurately a trillion or two dollars!

The U.S. is in deep trouble economically caused by meltdowns in the housing and financial markets. In fact, America is looking recession in the face, perhaps a prolonged and deep one.

To fix this and perhaps even avoid a depression, the U.S. needs money to stimulate the economy. Congress has already appropriated nearly a trillion dollars, but many say this is not enough. Providing more means deficits and serious inflation. The question is: Where is the money to come from?

China is doing quite well. The projected growth in the Chinese economy for 2009, according to Merrill Lynch, is 8 percent. This is down from 2008 when China’s output of goods and services grew 11 percent, still very good and much better than other countries. In comparison the 2009 projection for the U.S. economy is to contract by 2.8 percent, Japan to shrink by 1.3 percent and the European Union to fall by 0.6 percent. Not only is China doing better than the U.S., China already owns a lot of America. By most accounts the U.S. owes China something around $1.5 trillion or $6,000 per U.S. citizen.

When Chinese leaders talk about cashing in its almost one-half trillion in Treasury Bills, as they sometimes do, the financial markets in the U.S. shudder. Now China could stoke the U.S. recession, though it certainly does not want to do that. A more salient reality is that the U.S. needs more money, and China, which is sitting on nearly $2 trillion in foreign reserves, may be the only place to get it.

In such an environment money means power and power means influence; the advantage clearly goes to the creditor and the future bigger creditor — China. There is evidence that China has already gained clout with the U.S. because of this state of affairs.

Very recently, Washington decided against (or at least has delayed a decision) allowing Japan to buy the next generation of U.S. fighter planes — the F-22 Raptor. The U.S. has also engaged in some talks with China about North Korea without giving Tokyo advanced warning. Both were shocking to Japan and to many U.S. foreign policy wonks. It has long been said that Japan is America’s most important ally. Certainly U.S.-Japan relations seem to be good otherwise. China seems to have made the difference.

A few months ago the U.S. agreed to allow Taiwan to buy $6.5 billion worth of arms from the U.S. One would think this would seem to upset China; indeed Chinese leaders in Beijing quickly expressed their displeasure over the matter.

But this may not really be what it appears. Bush promised Taiwan $18 billion-plus in arms back in 2001. The recent agreement is little more than putting that sale back on track after a long delay — but at a much lower amount.

Recently the U.S. had asked Australia to take some accused Uighur terrorists to be released from Guantanamo Bay. Washington did not want to send them back to China in view of the likelihood they would be tortured and executed, so tried to broker a deal with Australia. China put pressure on Australia, and the Uighurs will not go there. Washington has said nothing.

During the presidential election campaign Barack Obama pressed that China should revalue its currency upward to help the U.S. fix its yawning trade deficit with China. The response — China revalued, but downward. Human Rights Watch, a respected U.S.-based organization, recently issued a detailed report recommending things Obama needs to do to improve human rights conditions globally. One suggestion was to pressure China. The new president did not respond.

The Bush administration in its last months in office said almost nothing about Chinese spying in the U.S. China has long cowed Europe and recently canceled an important China-European Union meeting while suggesting it may reconsider a purchase of Airbus planes because the Dalai Lama visited France and met with President Nicolas Sarkozy.

It is unusual for Europe to bend to China’s pressure, but it did. It is new for the U.S., too, at least in the ways it has. China indeed seems to have gained more wallop as a result of America’s economic problems. And it is using it. This is a change worth noting.

John F. Copper is the Stanley J. Buckman Professor of International Studies at Rhodes College in Memphis, Tenn. © 2008 OpinionAsia