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Chilling U.S.-China relations

by Kevin Rafferty

Special To The Japan Times

U.S. President Barack Obama and Australian Prime Minister Julia Gillard’s decision to deploy U.S. Marines to northern Australia close to Asia and the angry riposte from China show how relations between the world’s superpower and the once and future great power have cooled to the point where it should be a matter of grave concern not only to Chinese and Americans, but to the whole world.

Just three years ago, as Obama entered the White House, all the talk was of a potential G-2, Sino-U.S. leadership of the world. That would have been bad enough for everyone else — when the elephants dance, the mice are liable to get hurt. But today’s increasing distrust between Beijing and Washington verging on hostility is worse — when the elephants fight, says an old Kikuyu proverb, the grass gets crushed. Anything smaller than an elephant risks becoming collateral damage.

Obama announced the deployment of marines, eventually building up to 2,500 soldiers in Australia itself. He told the Australian Parliament that he had “made a deliberate and strategic decision — as a Pacific nation, the United States will play a larger and long-term role in shaping this region and its future.” Obama stressed that the move was proof that America was a Pacific and a pacific power with peaceful intentions towards everyone.

Beijing did not see it that way. Obama said the deployment of marines was not intended to isolate China, but American officials admitted that Washington was more wary of China’s flexing of its military muscles in the Pacific seas. In Beijing, America’s move was seen as a threat, with the word “encirclement” openly used to describe China’s fears of the American action. An outsider, however, might note China’s increased naval activities in the East and South China Seas, and its increasing ties with Myanmar, Sri Lanka and Pakistan and ask who is encircling whom?

Hu Jintao will step down as China’s president next year and Obama’s job is under threat. But it is unlikely that the changing of either political guard will make much difference, unless Obama loses next November, in which case the prospects of Sino-U.S. harmony will take a sharp turn for the worse.

On the Chinese side, not much is known about Xi Jinping, Hu’s likely successor. His low profile suggests that he is a careful cog in the Communist Party machine. In power, he may surprise everyone by growing into the job, but most political commentators on China expect years of uncertainty as the new team feels its way, not wishing to offend the old guard or upset the party balance of power.

This may make for uncertainty and potential danger to peace in the Asia-Pacific littoral since a new leader above all cannot be seen to be weak. Beijing’s flexing of its muscles has included its determined claims to all the islands in the South China Sea and its expanded naval patrols. But China seems not to understand that these heavy-handed assertions of its power have made other countries nervous about its intentions.

In the U.S. there is even more political uncertainty. Obama has disappointed his followers by his failure to kick-start the economy, and inability to contain continuing high levels of unemployment. But all of his potential Republican opponents seem determined to polarize the economic debate and to show their hawkish attitudes on contentious issues with China.

Republicans also claim that Obama is not patriotic enough. For them, the U.S. is not an exceptional country: it is the exceptional country, unique.

Although no one will go to war in defense of human rights thousands of miles away, Beijing has done itself no favors by its support of the oppressive Assad regime in Syria, or by its sympathy for nuclear-hungry Iran and supply of nuclear parts to Pakistan. American politicians are also angry about Beijing’s harassment of dissidents such as Ai Weiwei at home.

Economic issues provide fertile ground for tension. Economists at the Peterson Institute for International Economics, who have long been in the vanguard claiming that China’s undervaluation of the renminbi has exacerbated trade distortions, say that thanks to modest appreciation plus higher inflation in China, the undervaluation of the renminbi has narrowed to 11 percent against currencies overall, and to 24 percent bilaterally against the dollar.

Simple-minded Americans may find it easy to blame China’s currency for the complex ills of the U.S. economy. Obama, who should understand better that even a sharply higher renminbi would not solve U.S. unemployment, sharply criticized Hu in private at the APEC summit in Honolulu for what he claimed were unfair Chinese currency and trade practices. In public, Obama threatened punitive measures unless China started “playing by the rules.”

China’s own fast-growing economy is also under pressure. Economists are sharply divided, with some confident that China will achieve a soft landing, while others warn of interlinked economic, political and social dangers confronting China. Professor Larry Lang of the Chinese University of Hong Kong claimed in a closed-door meeting in Shenyang City last month that China is on the brink of bankruptcy, with every Chinese province a potential Greece.

According to Epoch Times, Lang questioned Beijing’s optimistic officials statistics. He claimed that Chinese debts totaled 36 trillion renminbi, adding up debts of local governments and state-owned enterprises, with annual interest of two trillion a year; inflation was 16 percent; private consumption was only 30 percent; and the real rate of growth was not the official 9 percent, a figure bloated by infrastructure construction, but had fallen by 10 percent, according to the Epoch Times’ report. Lang had asked that his speech should not be reported or “everyone will look bad.”

Beijing and Washington should be persuaded that a competitive spirit within a framework of cooperation would be best for the two countries and the rest of the world. India and or Japan could play a constructive role if they had the imagination, or stronger international bodies, such as the International Monetary Fund, World Bank and World Trade Organization, could play a part.

Unfortunately, other countries or leaders who might try to bring a sense of perspective are either preoccupied with their own problems or distrusted, especially by a suspicious Beijing. The mistake of putting another European to run the IMF at a time when Europe falsely believes that it is the center of the world may now be revealed if an unhappy U.S. and prickly China lock horns over political and economic issues.

Kevin Raffery is editor in chief of PlainWords Media.