[Mb-civic] SHOULD READ: Indispensable, untouchable China - Robert Kuttner - Boston Globe Op-Ed

[William Swiggard]

  Indispensable, untouchable China

By Robert Kuttner  |  April 22, 2006  |  The Boston Globe

QUESTION: HOW do you apply leverage against an emerging geopolitical 
giant that also happens to be among your biggest creditors? Answer: not 
very well.

When President Bush took office, prodded by neoconservative advisers, he 
viewed China as a potential rival and menace. Today, bogged down in Iraq 
and hobbled by American financial dependence on Beijing, Bush must look 
to the Chinese like a modern, self-inflicted Gulliver.

Washington has several issues, as the children say, with the Chinese. 
For starters, Beijing should play by the usual financial rules and not 
keep their currency artificially cheap to stimulate exports, which 
worsens our $200 billion bilateral trade imbalance.

We want the Chinese to respect American intellectual property, religious 
liberty, and human rights. We'd like Beijing to play a more helpful role 
in the nuclear containment of North Korea and Iran, and, please, not to 
menace Taiwan.

Administration officials have wishfully urged the Chinese not to try to 
corner global petroleum supplies, as their appetite for energy grows. In 
other words, do as we say, not as we did.

But, in polite White House conversations with Bush this week, China's 
leader, Hu Jintao, was having none of it. Hu offered empty promises of 
greater currency ''flexibility," and increased domestic demand, but 
explicitly ruled out the dramatic revaluation that the Bush 
administration wants, as well as explicit commitments in other areas.

And there is just about nothing Bush can do about it. The world's sole 
remaining superpower, despite a military budget more than 10 times 
China's, is curiously impotent when it comes to influencing Chinese 
behavior.

Why? Two big reasons. First, we have let ourselves get into a dangerous 
economic co-dependency. We keep borrowing money to finance a trade 
deficit that gets more alarming every year. The Chinese, now our 
second-largest creditor, keep accumulating dollars, which they lend back 
to us to underwrite those deficits and provide America the borrowed 
funds we need so that we keep buying their products.

Some of those products are made by affiliates of US companies, which 
have flocked to China for the dirt-cheap labor. Others are made by 
mostly Chinese companies, which have paid huge subsidies or imposed 
content requirements to induce American producers to shift high-end, as 
well as low-end, production to China.

What would happen if the Chinese pulled back, even a bit, on their 
lending? Heavily dependent money markets would go into cardiac arrest.

The second reason for our lack of diplomatic leverage is that Washington 
has let the narrow interests of American corporations overwhelm the 
broad interest of the nation. The United States sponsored Chinese 
membership in the World Trade Organization long before China was willing 
to play by normal trade and currency rules.

Why did we do this? Because American companies hoping to locate 
production in China or to export to China, as well as American banks and 
insurance companies, were eager to have China in the trading system, 
even if China broke trade and currency rules.

China breaks the rules by pegging its currency, by lending to 
government-controlled companies at zero interest, by limiting what 
foreigners can buy, and much more. It is an export powerhouse, but not a 
normal capitalist country. By letting a still mercantilist China into 
the WTO prematurely, Washington lost its best leverage to change China's 
behavior going forward.

Normally, a developed country would be exporting capital to a developing 
one. With a need to create jobs for hundreds of millions of peasants and 
a growth rate of about 10 percent a year, China has a huge appetite for 
capital. China absorbs massive investments by foreign companies with one 
hand, while it doles out dollars to American capital markets with the 
other. As Hu adroitly demonstrated with Bush, by making itself 
indispensable China makes itself untouchable.

The Bush administration imagines that as China becomes more capitalist, 
it will naturally become more democratic. Dream on. China remains a 
one-party state that still plays rough with dissidents. In case we 
forgot, Nazi Germany was a convenient alliance between a despotic state 
and the captains of German private industry. China displays a mutation 
of capitalism that violates both free markets and free society, and does 
very nicely at it.

At this week's meetings, fittingly, most of the honored guests were 
American corporate executives. If our China policy were not so warped by 
the dictates of America's business elite, Bush might have more 
diplomatic leverage to pursue his political objectives with Beijing. 
This irony might seem poetic justice if the stakes weren't so high.

Robert Kuttner is co-editor of The American Prospect.

http://www.boston.com/news/globe/editorial_opinion/oped/articles/2006/04/22/indispensable_untouchable_china/
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