Carrot and stick: China and US tinker over their ties

By Frank Brandmaier May 7, 2011, 4:42 GMT

Washington - When China and the United States get together, the world listens. Recently, there have been friendlier tones in the air between the two world giants.

But there are still plenty of conflicts pending in the third round of their strategic and economic dialogue that begins Monday in Washington.

The two countries are the super tankers of the world economy, and as with behemoth ships that ply the ocean, correcting course is not always easy.

Recently, an unaccustomed measure of praise has been seeping out of the US, above all over China's controversial currency policy. That doesn't mean that Washington is satisfied. China on the other hand has increasingly allowed itself to be pulled into the international boat - but clearly draws the line at the issue of human rights.

When the world's two largest economies start meeting on Monday, they will continue to tinker at their bilateral construction site. Speaking for the United States will be Treasury Secretary Timothy Geithner and Secretary of State Hilary Rodham Clinton. Beijing is sending Vice Premier Wang Qishan and State Councilor Dai Bingguo.

The Chinese delegation is also to meet with US President Barack Obama.

Geithner recently sounded almost optimistic about the sea change.

'Over the past two years, we have seen the beginning of promising shifts in the economic policy in China that have the potential to benefit China, the United States, and the world as a whole,' he said.

Since June 2010, the yuan has increased in value against the dollar by more than 5 per cent. Beijing has also loosened its grip somewhat on controlling capital flow, and is trying to stimulate domestic demand for products.

In January, during the US visit of Chinese President Hu Jintao, the two sides signed juicy billion-dollar deals.

But Obama's treasurer did not forget using the stick after doling out so much candy: China's currency still remains 'substantially undervalued,' Geithner complained. But it would be even better if Hu keeps his promise about better protection for intellectual property rights.

'And of course we hope and expect to see continued progress in implementing these commitments effectively,' he said.

US Commerce Secretary Gary Locke, nominated to become the next US ambassador to Beijing, also let loose with a broadside at Beijing: US companies still find it more difficult to do business in China than Chinese companies doing business in the United States, he charged.

'This imbalance of opportunity is a major barrier to continued improvement of the US and China's commercial relationship,' Locke said.

Not that Beijing is entirely happy about commercial issues.

'As the US government continues to request accessibility to the Chinese market for its firms, we now raise a similar request on behalf of Chinese firms,' countered Vice Finance Minister Zhu Guangyao.

The US strategy is very clear. There will only be concessions when Beijing, still the largest holder of US debt, is ready to move, Geithner said last week.

Beijing's warning lights however flash at the mention of human rights.

'We hope it (the United States) will not devote too much energy to individual cases that involve violations of Chinese law,' said Vice Foreign Minister Cui Tiankai in Beijing.

But China's delegation will hardly be able to avoid the issue during its two days in Washington. China is meting out the worst repression since the late 1990s. Dozens of civil activists and lawyers were arrested since the year's begin, including the artist Ai Weiwei.

During the annual US-China human rights dialogue in late April, Beijing's foreign ministry protested against the US for meddling in domestic issues under the guise of human rights.

China may be flexing its muscles, but Washington will want to avoid any appearance of being a junior partner, given its stagnant economy and huge debt held by Beijing.

'With its actions and words, the Obama administration has signaled that it wants to deal with China on equal terms and will not back off from conflict where it feels that China is subverting the established rules of the game,' said economist Eswar Prasad from the left-leaning think tank Brookings Institute.

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