China and the United States will step up their cooperation for global financial and economic stability out of strategic considerations despite other conflicting interests, the experts told the March 30 symposium.
The global crisis and the calls for rebuilding the international financial system also set the stage for Japan and China to work together for a new regional architecture, although Tokyo-Beijing ties remain a weak link in the trilateral relationship among the world’s three largest economies, they said.
What is happening now, said Yoshihide Soeya, director of Keio University’s Institute of East Asian Studies, is a paradigm shift in the world’s economic and political systems, and the question will be how to build a new paradigm.
In trying to overcome the current crisis, each country must at the very minimum probe and disclose information about their nonperforming debt so that the world can determine the global scope of the problem, he said. “It is the global equivalent of what Japan did” after its asset-inflated bubble burst in the early 1990s, Soeya said.
Then comes the obvious question of what to do with the next international financial architecture, he said. The postwar dollar-based system has in fact been flagging since the 1970s and from Asia’s point of view, the economic integration of East Asia would come into focus as a long-term vector for building a new regional monetary scheme, he said.
Soeya noted that a common currency in Asia like the euro for Europe would not be easy to create, but he added that something like a quasi-common currency could be a target that the region would be pursuing in a new global architecture that will also encompass dollar-based and euro-based systems.
And financial cooperation between Japan and China will be of crucial importance for such an effort, he noted.
Right after the 1997 Asian crisis, the initiative to create an Asian Monetary Fund as a regional mechanism for financial stability met with U.S. opposition. Today, however, such regional efforts appear to have gained a certain degree of legitimacy, he said.
Soeya said that Japan and China should work together to forge a regional consensus on a financial stability regime in Asia, and then work with the U.S. to coordinate with the global schemes.
After the U.S. ceased to be the dominant player in the international monetary regime in the 1970s, major industrialized powers have managed the global economy, starting as the Group of Five and expanding into the current Group of Eight.
Now the Group of 20 — which includes emerging powers like China — is in the limelight because apparently the G8 members alone cannot cope with the ongoing crisis, but an idea gaining momentum recently talks about a “Group of Two” that would put the U.S. and China at the head of international affairs.
Soeya said this concept of a G-2 does not mean that the U.S. and China will work together based on a set of shared values and world views. “Rather, it assumes that China is different — and that despite the differences, the U.S. and China would still have to work together to manage the world economy,” he said.
Soeya described the U.S.-China relationship in general as a “strategic coexistence of two in the same bed with different dreams.”
“The two countries realize that they need to cooperate for strategic reasons even though they continue to have mutually conflicting interests,” he said.
The areas where the two countries have “different dreams” include China’s military modernization, their respective presence in East Asia, China’s views toward the so-called Washington consensus in the management of the global economy, as well as democracy and human rights issues, Soeya said.
“These differences will remain, but they realize that their common interests are more important for now — and that they have to cooperate to ensure stability in the global system,” he said.
Zhou Yong Sheng, a China Foreign Affairs University professor, said China-U.S. ties have developed from a regional relationship to a global one. During their talks in London ahead of the G20 summit last week, U.S. President Barack Obama and Chinese President Hu Jintao agreed to set up a bilateral strategic and economic dialogue.
Jin Du, a Takushoku University professor, said the U.S. needs to be in close cooperation with China for its own economic recovery, given that the U.S. is the world’s largest debtor country and China has replaced Japan as the world’s largest holder of U.S. government debt.
But this does not mean their cooperation would be smooth sailing, Jin said, because their deepening interdependency also raises concerns that one would suffer from the mistakes of the other.
Chinese leaders have expressed concern about a possible crash of the dollar because a fall in the U.S. currency directly affects the value of China’s overseas assets, he noted.
When U.S. Secretary of State Hillary Rodham Clinton visited China in February, one of her implied messages was that Washington wants Beijing to keep holding the U.S. Treasury bills and to buy more, he said. But some Chinese media called for diversifying the ways in which China’s foreign currency reserves are managed so as to ensure the safety of state assets, he pointed out.
Zhou said the lack of a regular mechanism to ensure policy communication and cooperation among the world’s top three economies is a major problem. The three countries should start with a dialogue among high-level officials and then consider upgrading the talks to a trilateral summit, he said.
With the Japan-U.S. alliance still solid, and China and the U.S. seeking to upgrade their ties, the relationship between Japan and China remains a relatively weak link, Zhou said.
The structural weakness of Tokyo-Beijing ties, Zhou said, is attributable to a number of factors, including fragile mutual trust, lingering public doubts toward each other, and other sensitive issues such as wartime history, territorial disputes and gas exploration in the East China Sea.
Soeya of Keio University meanwhile said the Japan-China relationship will develop for the time being on a “mutually beneficial” note.
China in recent years appears to have established a solid policy toward Japan — securing a position for Japan in its overall diplomatic strategy, he said. Unlike the days of former President Jiang Zemin, the current Chinese leadership does not treat Japan as a “special” country in a negative sense because of the wartime history, he added.
This in turn presents a strategic opportunity for Japan, Soeya said, although he added that new developments in Tokyo-Beijing diplomacy continue to be hampered by domestic political and nationalistic considerations on Japan’s part.