Ties between America and China are spun from a complex web of issues encompassing trade, natural resources, civil liberties and security. This is the bilateral relationship that will affect all others and quite possibly define 21st century history in the process – but in growing so close, a degree of tension between the two sides is inevitable.
The US has become China's top trade partner and largest export destination. America's consumption of Chinese exports, which has risen from US$102 billion in 2001 to US$243 billion in 2005, has been a key driver of the Asian country's 9%-plus annual growth over the period and contributed to foreign currency reserves growing to around US$1 trillion.
US firms have invested a great deal into China and made healthy returns. Washington can name China as its third largest trading partner and second largest export destination. As China's imports trebled between 2000 and 2005, the US saw its share of this market rise 160% to US$41 billion. A recent study, China: The Balance Sheet, claims the US is US$70 billion better off each year thanks to trade with China.
Yet it appears that this mutually beneficial system – China produces cheap goods, the US consumes them – has been allowed to roll on too far without fine tuning.
For China, this heavy dependence on exports (40% of GDP) continues to come at the expense of a rise in domestic demand. As long as its people remain savers rather than spenders, the next stage of China's economic growth will be challenging.
Rough ride ahead
The US, however, is much closer to feeling the negative effects. Its trade deficit increased US$116 billion in 2005 to stand at US$782 billion while its domestic savings rate is the lowest of any large industrialized country, with consumers actually spending more than they earned in 2005.
They are able to sustain this position of living beyond their current means because foreign countries – many of which, like China, sell cheap goods to American consumers and thereby keep down inflation rates – buy US debt.
As a result, there is a sense that America is merely putting off the consumption hangover. A loss of confidence in, and subsequent dumping of, US dollar-denominated assets would hit the US currency hard. As it stands, a slowing property market is set to deprive US consumers of the equity through which to satisfy their retail appetites and so a downturn seems inevitable.
While these problems are not solely Beijing's fault, its US$202 billion share of the US trade deficit – together with accusations of currency manipulation, trade restriction and inaction over intellectual property rights (IPR) violations – makes China an easy target.
"Most of these congressmen are looking for reasons to give to their constituents for unemployment and inflation," said Shen Shishun, director of the division for Asia-Pacific studies at the Beijing-based China Institute of International Studies.
Several dozen China-related bills are currently making their way through Capitol Hill's bureaucratic channels. Covering everything from human rights to intellectual property rights, the vast majority call for investigation and possible punitive action against Beijing – protectionism is the order of the day.
Two bipartisan Congressional groups have been set up to facilitate informed debate on China and prevent politicians from falling into the extremist categories "dragon slayers" and "panda huggers".
The US-China Working Group, co-founded by Representative Mark Kirk, a Republican from Illinois, is seen as having pro-Beijing leanings while the Congressional China Caucus, spear-headed by Representative J. Randy Forbes, a Republican from Virginia, has a reputation for a more cold-hearted approach.
On China issues, Kirk accepts that, while the White House view is relatively nuanced, the House of Representatives is negative and uninformed.
"Many House members follow Senator [Charles] Schumer on the currency issue, and this issue only really exists in the New York media market," he said. "This is because Senator Schumer is competing with Senator [Hillary] Clinton for attention."
Apparently to his enormous surprise, Schumer's bill proposing a 27.5% tariff on all US imports from China unless there is similar-sized appreciation in the yuan, has turned into something of a rallying point for the anti-China lobby. Following a visit to China in March with fellow bill backer Senator Lindsay Graham, Schumer agreed to postpone a vote on legislation, saying he recognized a willingness on Beijing's part to reform its currency.
The currency issue is one where it can be argued that politics and economic reality have diverged. Aside from destabilizing the Chinese economy, the effects of a significant appreciation in the yuan on the US could be minimal.
"It's not a case of 'we move the RMB then everything else will follow on'," said Jonathan Anderson, chief economist for Asia at UBS. "If you move the RMB by 20% tomorrow, China would carry on selling at the same pace – a US$5 increase in T-shirt prices wouldn't make a difference."
This is partly built on the premise that US and Chinese producers are only in direct competition in a few areas. China sells labor intensive goods – shoes, toys, textiles – while the US is a specialist producer of high-end goods such as heavy equipment and sophisticated electronics. An undervalued currency may make Chinese exports artificially cheap but an adjustment isn't going to reignite the US economy. The real losers now are low income economies such as India, Turkey and Mexico that produce similar goods to China and have been priced out of the export market.
However, the US manufacturing lobby, concerned at 81,000 job losses in 2005, makes a lot of noise.
"This is classic in trade politics," said Susan Shirk, a former US State Department official for China, Hong Kong and Taiwan, now a professor at the University of California's Institute of Global Conflict and Cooperation. "Producer groups are better organized than consumer groups."
Consumers will ultimately take the hit for any price rises and, at a time when family finances are becoming stretched, it would be harsh medicine for any politician to administer. "Schumer has postponed his bill so many times and it is going nowhere," said Dr Nicholas Lardy, a senior fellow at the Institute for International Economics (IIE). "He has lost credibility."
Congress's gripes with Beijing over its failure to protect IPR have much stronger grounding. Repeated promises to tackle flagrant piracy successfully raised awareness but they have yet to be fulfilled.
A White Paper published in May by the American Chamber of Commerce in China notes that the commitment made to innovation in the 11th Five-Year Plan may see improvements in the interests of protecting Chinese firms' own R&D. But until this time comes, enforcement will continue to be thwarted by an unhelpful legal system.
"China stole US$60 billion in IPR from the US last year, there is no question about this," said Rep Forbes. "It equates to one third of the US trade deficit with China."
Efforts to pin the remainder of the US$202 billion deficit on unfair Chinese trade practices don't produce such clear-cut results, though. For example, while Beijing continues to erect barriers to some US exports and indulges in creative interpretations of global trading standards, the Chinese economy is comparatively open.
Import tariffs have fallen from over 50% in 1982 to under 10% in 2005; India imposes a rate of 29.1% and Brazil 12.4%.
Final stop shop
The real reason behind the huge deficit is China's emergence as a low budget final assembly point for goods made elsewhere in Asia. As many as 55% of the country's exports are produced by foreign-invested firms that ship in the components and therefore ship out two-thirds of the product value.
Asia's proportion of the US trade deficit has stayed relatively stable over the last 20 years; the likes of Japan, Korea and Hong Kong have simply started routing much of their share of exports through China.
Production bases move, of course, forever in search of the cheapest labor, and the US trade deficit will follow. UBS's Anderson points to "pretty flat" figures for toy and textile exports – against gains in these areas for Vietnam and Bangladesh – as a sign that this is slowly starting to happen.
"China will not be the outsourcing destination of choice forever," he said. "Ten years from now the US will be talking about the Indian deficit."
China has, in a manner of speaking, moved up the value chain to electronic products; but competition with highly-skilled US manufacturers at the top end of the market is still a long way off. "I don't think this signifies any upward movement whatsoever," said the IIE's Dr Lardy.
"These electronic goods are still just being assembled in China so the underlying economics are the same as with textiles. Over time the imported content may fall as domestic firms supply more components – but China is still the world's third biggest exporter and this won't change soon."
A reduction in the US trade deficit – and therefore the protectionist sentiment and global imbalances that go with it – can only be achieved through dollar depreciation. Relatively cheaper US exports would bolster the trade balance and this would have to be supported by less spending and more saving by American consumers.
"The current account would improve but the slowdown in US imports would have an adverse effect on the global economy," said Dr Lardy.
Having calculated that the yuan was 20-40% undervalued as of last summer, he pushed the theory that China could assist in the movement of the dollar by allowing its currency to appreciate further. Other Asian economies would then follow suit, pushing down the relative price of US goods and consequently increasing their demand for them. This would effectively fill the gap created by America's consumption slowdown and stave off a recession.
Several months on, he and other economists have their doubts. "The idea that when the yuan appreciates, global currencies can appreciate – I'm not sure this solves the problem in the long run," said Andy Xie, Morgan Stanley's chief economist for Asia Pacific.
"An appreciation in the yuan is not a ticket for the US to avoid recession."
Xie compounded these fears in his June economic briefing, predicting a global bear market as the Western consumption boom ends with Asia "not ready to take over from the US as the global growth engine". He singled out China with its strong potential for consumption-led growth as a potential savior but rued a growth model that only serves to add to household financial burdens. As long as this remains, the domestic savings rate will remain sky high.
"There needs to be a rise in fiscal spending in areas such as healthcare and education," he told CHINA ECONOMIC REVIEW. "State-owned enterprise shares need to be transferred to the public, more public housing is required to get away from rising property prices and the minimum wage has to go up. China needs to give more money to the Chinese people to spend."
Dr Lardy shares these concerns, noting that Beijing is still several years and a fresh attitude away from implementing reforms. "Credit growth, GDP growth and investment are still rising and consumer lending is running at half the pace it was two years ago," he said. "China is moving in the wrong direction and becoming more investment-driven."
Washington is prepared to be patient over China's commitments to reform but Dr Lardy warns that this won't last forever.
"If China goes into 2007 running an even larger surplus and the US current account is higher, there will be more protectionist sentiment," he said. "China could be a big issue in the next presidential election."
For the world as a whole, the implications of heightened Sino-US tension or, even worse but ever more unlikely, disengagement between the two, go way beyond economics. "Picture the wide range of global challenges we face in the years ahead – terrorists and extremists exploiting Islam, the proliferation of weapons of mass destruction, poverty, disease," outgoing US Deputy Secretary of State Robert Zoellick told the National Committee on US-China Relations last September.
"And ask whether it would be easier or harder to handle these problems if the United States and China were cooperating or at odds."
Getting on with business
Listening to the mainstream media, you would be forgiven for thinking the Sino-US relationship is dominated by intractable issues – China's growing trade surplus, currency reform, intellectual property rights and energy needs.
But for the almost 50,000 US businesses plying their trade on the mainland, the problems are much simpler to solve, and the general outlook much brighter.
"I think for most of our members here, their problems are very concrete problems," said James Green, government relations director at the American Chamber of Commerce in Shanghai (AmCham-Shanghai). "They don't ignore larger macro and geopolitical interactions, but it is not as relevant to their business as you'd think."
In fact, much of the concern felt in the business community centers on what the US government is doing rather than the Chinese authorities' actions, particularly now China is in the WTO and increasingly playing by international norms.
"That is why the [Schumer-Graham tariff bill] was so troubling because if you put that up then the entire trade relationship has gone in the toilet," said Green. "Apart from those alarmist things, our members by and large are not so focused on the political."
As China has developed, so the nature of members' business has changed, with most companies now looking to make a buck out of China's growing middle class rather than save a buck on working-class labor.
In the 2005 AmCham Shanghai business climate survey, 62% of respondents said their number one goal was to produce goods or services for the domestic market. A further 11% were here to import American goods into China, while only 19% were primarily in China to export to the US and other offshore markets.
It is the shifting focus that has created arguably the biggest obstacle to US business success in China. To sell US goods and services to China, companies need to take potential clients to the US, but following the September 11, 2001 terrorist attacks, stricter visa processes have made this much more difficult.
A recent White Paper from AmCham-China, AmCham-Shanghai's Beijing-based equivalent, showed the extent of the problem, with 44% of US companies noting significant sales losses due to US visa issues. Seventy percent said they avoided US-based meetings because of the issue.
"Our understaffed consular missions and cumbersome visa process continue to unwittingly drive potential Chinese customers to the Europeans, Japanese, and others," the White Paper said. "Many Chinese officials, buying on behalf of large state-owned enterprises, have told AmCham that they regard the American visa application process as lengthy, uncertain, and personally humiliating."
This could be hugely damaging for US business, with demand for foreign products and services proving insatiable. AmCham-Shanghai figures show 82% of members expanded business activities in 2005, and 56% increased market share.
Growth at this pace means competition for the best staff is intense. Finding skilled managers who can control an expanding company and manage a Chinese-speaking team is the most critical issue facing US business today. Last year, it moved ahead of bureaucracy, corruption and lack of transparency in the business climate survey for the first time.
The competition for skilled staff is symptomatic of an increasingly competitive business community, with 60% of AmCham members experiencing greater competition from mainland companies in 2005. The commercial threat of domestic companies is expected to become even greater as China consolidates fragmented industries, unifies tax rates and opens up the capital markets to smaller firms.
A more even, market-based playing field will be in the interest of American companies, argues Green, ending the days of free-capital currently enjoyed by big Chinese enterprises like Lenovo and Haier.
"If there is more competition in the financial sector and the banks are really held to a market-based standard they won't be able to just shell out capital," he said
Greater competition also means more potential partners that US businesses can use as a means of accessing the China market. According to Dale Sullivan, Chevrolet brand director for Shanghai General Motors, domestic companies have a level of expertise and political influence to which very few foreign firms can aspire.
"How do you treat your employees? How do you buy a plant when you don't have any connection with the government?" asked Sullivan. "We couldn't have come here by ourselves. All the advantages that we have gained we can say, 'thank you SAIC for what you have done for us'."
While business in China could always be easier for foreign firms, and issues like intellectual property rights remain at the forefront of on-the-ground concerns, few US companies are complaining about the present, or the immediate future. According to the business climate survey, 92% of almost 400 US companies surveyed said they had an optimistic business outlook for the next five years.
But while these companies get on with business, they will no doubt be keeping one eye on the papers, hoping that what happens at the political level won't derail the gains they have made at the coalface.
"Both the administration here in China and the US administration see this relationship as an important one to build on," said Green, "and hopefully neither side is going to let it fall into disrepair."
On the global resource trail
When outgoing US Deputy Secretary of State Robert Zoellick called upon China last year to become a "responsible stakeholder" in the international system, he was voicing Washington's concerns at a foreign policy that has seen China climb into bed with a number of political pariahs.
Recent moves by Washington to take action against nuclear-developing Iran and conflict-riven Sudan have been disrupted by China at the UN Security Council.
With Iran and Sudan making up about 20% of China's oil imports, Beijing stands accused of turning a blind eye to global security in the interests of its energy needs.
"Sudan, Myanmar, Zimbabwe, Iran – these are all areas where the US and Europe have strong geo-political or geo-strategic goals," said Dr Elizabeth Economy, director for Asia studies at the Council on Foreign Relations. "China just hides under the cover of this 'we don't mix business with politics' argument but if you support bad regimes it comes back to haunt you."
Shen Shishun, director of the division for Asia-Pacific studies at the Beijing-based China Institute of International Studies, argues that energy deals with Iran don't equate to support of its nuclear ambitions.
"These countries are sovereign states and we should have normal economic relations with them," he added. "The use of sanctions could just aggravate these tensions. We have to have a different influence."
Certainly, if Beijing used its leverage over Iran while the US applied pressure through normal channels, both countries stand to gain. China's oil consumption is growing 7.5% a year. It's expected to import 75% of its crude by 2025 and, come 2015, 70% of these imports will come from the Middle East – just like the US, China has a keen interest in keeping the region stable.
Friend not foe
In this way, it can be argued that US should view China as an energy partner rather than a rival. "Competition for energy is a false issue and it's regrettable that public officials in the US are describing it as a geo-political issue," said Susan Shirk, a former US State Department official for China, Hong Kong and Taiwan, now a professor at the University of California's Institute of Global Conflict and Cooperation.
However, the shady nature of many of Beijing's trade dealings remains a moral obstacle for the US.
An Amnesty International report published last month puts China's arms exports at more than US$1 billion a year. It accuses Beijing of getting access to natural resources in exchange for weapons that are then used in serious human rights abuses, citing shipments made to the likes of Iran, Myanmar, Sudan and Zimbabwe.
Looking at the foreign policy picture as a whole, there is a sense that China – as a byproduct of its global resources quest – is usurping the US as many nations' "powerful ally" in the international arena.
Following his US visit in April, President Hu Jintao made for Saudi Arabia, the world's largest oil exporter, whose ties with Washington have been weakened due to the US war on terror. From there he went to Nigeria, rubber-stamping a US$4 billion oil-for-infrastructure deal that will see China break the US and European monopoly on foreign drilling rights in the country.
Angola, Africa's second largest oil exporter after Nigeria, is one of several other African nations that are accepting shiploads of Chinese workers to help build everything from roads to railways.
It doesn't just stop at large scale oil agreements; Kenya, Rwanda and Zimbabwe are benefiting from Chinese investment, as are Sierra Leone's sugar and tourism industries. Beijing is investing in these countries' resource potential, such as Sierra Leone's underdeveloped bauxite mines.
Unsurprisingly, China is also diplomatically active in Southeast Asia, with Hu pledging billions in investment during trips to Brunei, Indonesia, the Philippines and Vietnam last year. In addition to trade goals, this raises suspicion of a range of alleged political motives: building a power base to counterbalance US military strength with regard to Taiwan; marginalizing Japan's foreign policy efforts; and an ambition to use regional influence as a stepping-stone to wider international influence.
But the big question is this: does China want to push the US out of East Asia?
"China has no intention of challenging the US," said Professor Shen. "When Wen Jiabao went to the Association of Southeast Asian Nations (ASEAN) conference he made it clear that China welcomes US participation in the Asia-Pacific economy."
Yet China's strengthening ties with ASEAN and America's noted absence from the conference – the US remains the key military power in the region – suggest the balance is tilting in Beijing's favor.
There is also the Shanghai Cooperation Organization (SCO), comprising Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and China, to consider. The oil-rich countries engage in military exercises and have called for a withdrawal of US forces from Central Asia.
"China's resource quest has taken it all over the world – Southeast Asia, Africa, Latin America – and much of this is very natural," said Dr Economy. "Is there a decision on the part of China to push the US out? It's not at the forefront of China's drive for strong economic growth and greater influence but I think that maybe it is a fourth- or fifth-level priority."
Perspective – Bates Gill
Like a person treading water, the political mood in Washington toward China is not sinking but it is not moving anywhere either. Americans and their leaders know China is important but too many uncertainties impede significant improvement in the relationship.
On the foreign policy front, the Bush Administration already has an overflowing "in box" of preoccupations – Iraq, Afghanistan, Israel-Palestine relations, and Iran. Under the circumstances, even the critical issue of rolling back North Korea's nuclear ambitions is faltering, though it is clearly a problem where Washington and Beijing share interests.
Nevertheless, the mood is souring toward China: "Beijing needs to do more to pressure North Korea" is an increasingly common refrain. Similar views are beginning to arise regarding Iran as well.
Domestically, President Bush is on the political ropes with approval ratings hovering in the mid-30s, and is cautious not to appear "too close" to China, which might alienate the conservative base. His remaining energies will not focus on foreign policy breakthroughs with China, but on easing out of Iraq and renewing American confidence on security and economic issues.
As for Congress – with a third of the Senators and all 435 Congressmen up for re-election in November – they are getting an earful at home about economic uncertainties, depressed wages, outsourced jobs. China's spectacular economic success makes for an easy scapegoat. Protectionist rhetoric will grow heading into the election season.
But it is not just about priorities and perceptions in the US. Beijing does not help its case in Washington by digging in its heels on revaluing the renminbi, skirting intellectual property rights protections, and backsliding on human rights, press freedoms, religious practice, and civil society development.
For most Americans and their representatives in Washington – whose touchstone for interpreting China is more often than not the man in front of the tank on June 4, 1989 – China and its dramatic rise remains a great uncertainty at best and potential threat at worst. A palpable ambivalence has settled in.
This situation will not change much in the near-term. It is an uphill political battle to convince Americans of the benefits of a more constructive and positive relationship with China. Conversely, there is no political price to pay for taking a tough stance.
Positive change will require stronger leadership in the public and private sectors to articulate the enormous strategic interests at stake in better US-China relations. Moreover, better relations will need significant improvements out of China on a range of economic, security, and political concerns.
Finally, improvements will come when there is substantial progress – from fiscal responsibility to educational reform – in how Americans deal with the challenges and opportunities China (and globalization) poses.
We shouldn't hold our breath. Those kinds of changes will not happen overnight. For now, we'll just need to keep dog-paddling.
Bates Gill is co-author of China: The Balance Sheet: What the World Needs to Know Now About the Emerging Superpower
Projecting power: Beijing's military machinations
China spends as much as US$105 billion per year on arms – far in excess of the official figure of US$35 billion – according to the US Department of Defense's (DOD) annual report to Congress on Beijing's military power, released at the end of May.
Nuclear capabilities aside, the report expresses surprise at the "pace and scope" of the transformation from a mass army to a force capable of engaging in high-tech warfare. It concludes that China is now able to "alter regional military balances" and is "developing capabilities that will enable it to project power beyond Taiwan".
Chinese authorities dismissed the report as an exaggeration, accusing the US of undermining progress made in international relations. It is true that Sino-US security cooperation has been strong of late, as US Defense Secretary Donald Rumsfeld highlighted in his speech to the annual Asian security conference in June. Tentative progress has been made with North Korea while tensions over Taiwan are at a relative low.
Yet what concerns the US is that China's explanation for its military build-up stretches little beyond a frequently-made assertion that it is committed to a "peaceful rise". The bulk of its military might is located close to Taiwan, with more than 700 short-range ballistic missiles, 700 fighter planes and 400,000 troops ready to be deployed should the island declare independence.
Beijing has also factored a potential US response into its plans. "The focus right now is on developing measures that affect the America's ability to operate," said Robert S. Ross, a Chinese defense policy expert at Boston College's department of political science. "The system won't enable China to engage the US in direct conflict, but simply undermine its capabilities."
However, the DOD report also warns of a movement towards weapons that could allow China to act beyond its coastal waters. These include long-range ballistic missiles, advanced fighter aircraft and submarines and continued efforts to obtain dual-use technology for cyber-warfare developments.
While these may pose no direct threat to US military supremacy in Southeast Asia, which is naval-based, it is possible that China could deploy more warships. Beijing has long been uncomfortable about the US navy policing the sea lanes along which oil reaches China from the Middle East. A strategic naval base is being built in Gwadar, on the Pakistani coast, and it remains to be seen how well-stocked this facility becomes.
"Will China make a decision as disastrous as the Kaiser's by trying to build a big navy?" queried Illinois congressman Mark Kirk, co-founder of the Congressional US-China Working Group. "We understand its need for an army and an air force, but if China builds a navy it will see that the US and Japan will not be outspent."
To Professor Ross, though, talk of an arms race is exaggerated. China's military expenditure may have tripled in the last 10 years but it's still small-fry compared to the US$420 billion that America has allocated for defense in 2006. The figure is roughly equal to the defense spending of the rest of the world combined. "The next generation of US aircraft are already underway," said Prof Ross. "China is playing catch up with a moving target."
Back in the USSR: Cold War comparisons
The recent US State Department decision to keep classified data off the hard disks of 16,000 computers bought from Chinese PC maker Lenovo was met in Beijing by accusations of US Cold War paranoia. The ministry of commerce went on to criticize the politicians who pushed the government on the issue for unnecessary interference, a view that is supported by a number of US experts.
"This is ridiculous, just Congress dramatizing things," said Susan Shirk, a former US State Department official for China, Hong Kong and Taiwan, now a professor at the University of California's Institute of Global Conflict and Cooperation.
Yet it is one of several knee-jerk Congressional responses to China, which are often put down to a failure to relate to Beijing.
"A lack of understanding certainly plays into it," said Dr Elizabeth Economy, director of Asian studies at the Council on Foreign Relations. "But part of the difficulty stems from China itself – there isn't a transparent political or economic system and this creates confusion."
Representative J. Randy Forbes, co-founder of the Congressional China Caucus, takes this even further, arguing that "the huge espionage efforts that China has made in the US" rules out a trusting relationship between the countries.
Rep Forbes was one of 328 House members who last year backed a bill to stop the US Treasury Department from green-lighting China National Offshore Oil Corp's (CNOOC) US$18.5 billion bid for US energy giant Unocal. Cumulative political pressure eventually saw the bid withdrawn.
Representative Mark Kirk, co-founder of the more pro-Beijing US-China Working Group, was one of the 91 dissenters. He believes that groundless energy security concerns trumped common sense, pointing out that Unocal sold its US interests years ago and now focuses largely on Indonesia. "To be a critic, you must know more about China than others," he said.
But Congressman Forbes is resolute. "There were several drilling sites that we felt had more strategic importance than the energy coming from them," he said.
The so-called Cold War paranoia is actually more reminiscent of the anti-Japan sentiment of the 1980s when Tokyo's billionaires were snapping up US assets. But, even here, there is no mirror image. "There isn't the same kind of fear in the US as Chinese products don't compete with domestic ones as Japan's did," said Andy Xie, Morgan Stanley's chief economist for Asia-Pacific.
It's also worth pointing out that outbound investment by Chinese firms averaged just US$1.4 billion a year between 2002 and 2004. US-headed investment reached an average of less than US$50 billion a year over a four-year period up to 2004. Between 1987 and 1991, Japan's average annual investment in the US was in excess of US$15 billion.
China's energy needs and appetite for Western brand equity saw outbound investment reach US$3.9 billion in the first half of 2005 and this is likely to continue rising. But will China really try to buy the Empire State Building and Wal-Mart? Xie is skeptical. "China is just trying something new," he said. "Enterprises have problems making commercial decisions, though, so I'm not sure it will become a strong trend."
Road map for reform
Whether in foreign policy or domestic, the efforts of China's government appear almost exclusively focused on preserving the upward momentum of the country's fast-changing economy.
To this end, it searches for resources to keep its factories running while simultaneously playing doctor to industries going about the painful transformation from state-run slob to commercial enterprise. It makes diplomatic moves to further integrate itself with trading partners but can't neglect the large proportion of its population still stricken by poverty.
"What I have taken away from my meetings with Hu Jintao, Wen Jiabao and Wu Bangguo is that domestic issues account for 80% of their concerns," said Representative Mark Kirk, co-founder of the Congressional US-China Working Group.
Clearly, China recognizes the role America can and will continue to play in its development. Aside from offering the largest market for Chinese goods, the US is home to the foreign partner in many of the joint venture companies taking domestic industry forward. It is also a source of assistance in various macroeconomic fields.
But, at the same time, there is a wariness of the US that goes beyond Taiwan's security or resisting pressure for faster currency and market reforms that could undermine progress made in improving China's still rickety financial sector. No US diplomat's speech is complete without a call for democratic reforms to supplement the economic ones.
"There's not much pretence made by US officials of their desire to see China open up its political system," said Dr Elizabeth Economy, director for Asia studies at the Council on Foreign Relations. "China feels threatened by this."
Indeed, US efforts to promote democracy are viewed with skepticism by some Chinese politicians and academics as America trying to rebuild China in its own image in order to gain more control. "Some US politicians think they have to find an enemy in China because they see it as a country with no democracy, no multi-party system and no directly elected president," said Professor Shen Shishun, director of the division for Asia-Pacific studies at the Beijing-based China Institute for International Studies.
"But China has to select its own system according to its own values. It is like a plant – growth depends on water, soil and temperature. In the US, the flowers may be very nice but in other places the plant might not grow so well."
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