Dispatch: U.S.-China Strategic and Economic Dialogue
Video Transcript:
The range of topics at the third U.S.-China Strategic and Economic Dialogue is expanding, but Analyst Matt Gertken says underlying strains could erupt at any time.
Editor’s Note: Transcripts are generated using speech-recognition technology. Therefore, STRATFOR cannot guarantee their complete accuracy.
The United States and China began the third Strategic and Economic Dialogue since the Obama administration took office. The range of topics is expanding, and both sides are maintaining the warm relations that they began in the beginning of the year. But the underlying strains on the relationship are very much present and can burst forward at any point.
What's new to this round of dialogue is that the two sides will initiate a strategic security track of dialogue, which China has just agreed to. This was an American proposal to discuss defense and military matters alongside the normal foreign affairs and economic and financial matters that are discussed at the Strategic and Economic Dialogue. Now the reason this is important is because the U.S. and China have a really irregular past when it comes to sharing information and communicating on their military. Now they'll be able to broach topics like nuclear disarmament or missile defense or general naval issues and questions about how China intends to use its growing military power in the region. And these topics will be discussed in a format that perhaps could become more regular, although it's really hard to say; typically, China cuts off military-to-military communications when the U.S. sells a new arms package to Taiwan. Perhaps the hope is that by initiating a new track of strategic security dialogue, that irregularity can be put to an end and they'll have a consistent means of communicating on the really tricky defense matters that these two countries face, especially going forward.
Now the next point is the economic and financial issues. Looking at the Chinese yuan, this as always is a major topic of discussion. The United States is going to be pressing for China to appreciate its currency faster against the dollar. The yuan has risen by about 5 percent over the past year and the U.S. is glad to see movement there. But at the same time it's clear that this movement isn't really very comparable to what's happened with other currencies, such as the Japanese yen, the euro, the Swiss franc or the British pound, all of which have risen much more dramatically against the dollar in the past year. But the U.S. isn't really going to limit its focus to the yuan. But now, Washington wants to expand the range of topics including interest rate ceiling, the idea being that if China can raise the interest rates for its vast pool of depositors at home, they will make more money on their savings and eventually they'll be able to build up savings and feel more comfortable, perhaps even consume more. And at the same time that would force China's banks to be much more particular about what rates they lend to their state-owned companies. In other words, it would force a total rebalancing of the Chinese economic system in which consumers would have more money and corporations and industry would have to pay more for the capital that they borrow.
On the strategic track, the truth is that China has a lot to be anxious about going forward. On the one hand, the U.S. has introduced the topic of Middle East unrest and how that applies to Chinese society, implying that China has this large problem of growing social frustration. How is China going to deal with that? Is it going to use force to quell protests or is it going to be proactive and improve living standards for people? China is afraid that the U.S. is simply going to be fanning the flames of domestic unrest in order to weaken China and take advantage of it. So obviously there's a lot of distrust there, especially with the U.S. taking this very proactive stance on Internet movements, social networking and projecting democratic values across the world. On the other hand, in South Asia, with the U.S. having killed Osama bin Laden, we're getting closer to a time that China realizes the U.S. will withdraw from Afghanistan and take less of a role in the region. That will put more of a burden on China and its ally Pakistan to stabilize the region, and China will be concerned that militancy running wild in the area will impact its western borders. So China's looking at having to take a much bigger role in stabilizing the area and in making sure that Pakistan does its part to prevent militancy from spreading.
And finally, China fears that if the U.S. does withdraw successfully from South Asia, that the increased freedom of maneuver that the U.S. gains will in fact later be brought to bear on China itself, as the two are seeing much greater strategic competition, and a number of U.S. allies in the region are demanding that the U.S. take a greater role in the Asia-Pacific to counterbalance China's rising power.
