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China and US interwoven economies
By John Gong |
May 21, 2010, Friday
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Print Edition
Print Edition
THE annual Strategic and Economic Dialogue between China and the US will be upcoming on May 24-25, and this time it will be attended by Obama administration officials at the highest level, including Secretary of State Hillary Clinton, Treasury Secretary Timothy Geithner, Commerce Secretary Gary Locke and US Trade Representative Ron Kirk.
The agenda is expected to cover three areas: the currency exchange rate, China's indigenous innovation program, and intellectual property right protection, which is an old topic brought up every year in Sino-US economic relations.
The battle over the currency manipulation fuss seems to be for the moment at a truce, with Secretary Geithner's postponing the report (on alleged currency manipulation) to the Congress, which had been scheduled for April 15. He was to take a position.
The issue of course is really not about an abstract value called the exchange rate, at 6.8 and something. The real issue is all about jobs, jobs and jobs - in both countries.
To that end, the pressure seems to be dissipated a bit since the beginning of the year, as American exports to China are coming back with a vengeance, growing by 50 percent in the first quarter, almost twice as fast as imports from China. And in coming years, the US has a lot more to sell to China in areas of green technologies, said Commerce Secretary Locke who just completed a trip to China with a legion of American corporate executives.
Even if the focus during the Strategic Dialogue is indeed on the exchange rate, it should be pointed out that it is not China's managed floating exchange rate per se, a mechanism that is based on a crawling peg with the US dollar, that is being challenged by the US, albeit it has been paying lip service to a freely convertible yuan all along.
It is the exact value of the peg that makes Washington uneasy. Now that the yuan starts crawling again, the issue seems to be starting to fade away.
China's indigenous innovation program is an issue of substance that needs to be handled carefully by both sides. The issue regards China's new government procurement policies that give preferential treatment to what are called "indigenous innovation products."
The controversy concerns the exact definition of indigenous innovation, for which many multinational corporations feel that they might be left out in the cold for government procurement contracts. To be fair, such practice is not unprecedented in the US. The US stimulus package last year also has so-called a "Buy America" provision that favors iron and steel products made in the US for federal infrastructure projects.
Level playing field
Nevertheless, on hearing a choir of protest headed by the two American Chambers of Commerce in China, Beijing quickly revised the wording of the policies that effectively put foreign companies back on a more level playing field.
On intellectual property right protection, the latest news can be found in the annual Special 301 report issued by the USTR (US Trade Representative) office two weeks ago. As usual, China tops its priority watch list with plenty of complaints from the US side.
However, there are positive elements, as evidenced in one paragraph where the report reads, "The United States is heartened by many positive steps the Chinese government took in 2009 with respect to these issues, including the largest software piracy prosecution in Chinese history, and an increase in the numbers of civil IP cases in the courts."
It is these types of encouraging developments that make the Strategic and Economic Dialogue meaningful.
To some extent, the Sino-US economic relationship will always be quarrelsome, just as America has a quarrelsome relationship with its closest ally Canada on a range of trade issues. As usual, behind the tough talk seen in media headlines, both sides are making conciliatory gestures in substance.
The two interwoven economies cannot live without the other side, as the US is transitioning from a consumption-driven growth model to an export-driven one, while China continues to need a stable global environment for economic development.
(The author is associate professor of economics at the University of International Business and Economics in Beijing. His e-mail: johngong@gmail.com)
The agenda is expected to cover three areas: the currency exchange rate, China's indigenous innovation program, and intellectual property right protection, which is an old topic brought up every year in Sino-US economic relations.
The battle over the currency manipulation fuss seems to be for the moment at a truce, with Secretary Geithner's postponing the report (on alleged currency manipulation) to the Congress, which had been scheduled for April 15. He was to take a position.
The issue of course is really not about an abstract value called the exchange rate, at 6.8 and something. The real issue is all about jobs, jobs and jobs - in both countries.
To that end, the pressure seems to be dissipated a bit since the beginning of the year, as American exports to China are coming back with a vengeance, growing by 50 percent in the first quarter, almost twice as fast as imports from China. And in coming years, the US has a lot more to sell to China in areas of green technologies, said Commerce Secretary Locke who just completed a trip to China with a legion of American corporate executives.
Even if the focus during the Strategic Dialogue is indeed on the exchange rate, it should be pointed out that it is not China's managed floating exchange rate per se, a mechanism that is based on a crawling peg with the US dollar, that is being challenged by the US, albeit it has been paying lip service to a freely convertible yuan all along.
It is the exact value of the peg that makes Washington uneasy. Now that the yuan starts crawling again, the issue seems to be starting to fade away.
China's indigenous innovation program is an issue of substance that needs to be handled carefully by both sides. The issue regards China's new government procurement policies that give preferential treatment to what are called "indigenous innovation products."
The controversy concerns the exact definition of indigenous innovation, for which many multinational corporations feel that they might be left out in the cold for government procurement contracts. To be fair, such practice is not unprecedented in the US. The US stimulus package last year also has so-called a "Buy America" provision that favors iron and steel products made in the US for federal infrastructure projects.
Level playing field
Nevertheless, on hearing a choir of protest headed by the two American Chambers of Commerce in China, Beijing quickly revised the wording of the policies that effectively put foreign companies back on a more level playing field.
On intellectual property right protection, the latest news can be found in the annual Special 301 report issued by the USTR (US Trade Representative) office two weeks ago. As usual, China tops its priority watch list with plenty of complaints from the US side.
However, there are positive elements, as evidenced in one paragraph where the report reads, "The United States is heartened by many positive steps the Chinese government took in 2009 with respect to these issues, including the largest software piracy prosecution in Chinese history, and an increase in the numbers of civil IP cases in the courts."
It is these types of encouraging developments that make the Strategic and Economic Dialogue meaningful.
To some extent, the Sino-US economic relationship will always be quarrelsome, just as America has a quarrelsome relationship with its closest ally Canada on a range of trade issues. As usual, behind the tough talk seen in media headlines, both sides are making conciliatory gestures in substance.
The two interwoven economies cannot live without the other side, as the US is transitioning from a consumption-driven growth model to an export-driven one, while China continues to need a stable global environment for economic development.
(The author is associate professor of economics at the University of International Business and Economics in Beijing. His e-mail: johngong@gmail.com)
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