The US Treasury Secretary Jacob Lew, as President Barack Obama’s special envoy, flew to China, meeting Chinese new state leaders President Xi Jinping and Premier Li Keqiang, just two days after the closure of China’s NPC. Lew himself, succeeded Timothy Geithner as US treasury secretary only 3 weeks before. His trip will be followed immediately by John Kerry, the new US Secretary of State. All these developments show the top importance both governments have attached to enhancing bilateral relationship, aiming at building a new type of relationship between big powers. A major chance of enhancing China-US relationship is looming on the horizon.
Managing cyber security issue from a strategic and cooperative perspective
Cyber attacks, which loomed up quickly to a boiling point, was a top issue Lew raised with Chinese leaders during his visit. President Obama had a round table meeting with several top business executives where he had made China accountable. John Engler, former Michigan Governor and now President of US Business Roundtable believed that “China is stealing business secrets at an alarming rate.” However, China has given a flat repute to all these allegations, as China strictly forbiddens cyber espionage by law. The spokesman of China’s Ministry of Defence said earlier that China was also a major victim of cyber attacks, most of them originating in the US.
Cyber security has become a major strategic issue between the two countries, as well as a bilateral economic issue at the strategic level. As the US strategic distrust in China deepening further, the cyber security issue, if not managed well, will aggravate this situation and hurt the basic foundation of the overall China-US bilateral relations.
The best way to tackle this issue is dialogue and cooperation. China and the US should set up a mechanism for continuous security dialogue at the high, strategic level. Meanwhile, the two sides should also set up joint task forces for identifying and protecting at the working level, advising both governments, and working out more specific norms of behavior in cyberspace.
Addressing Economic issues with a global responsibility
Economic and trade issues, while bilateral, should also be assessed from a global perspective. The top common interest lies in the whole world economic situation. The vulnerability and uncertainty in world economic recovery and world financial market has brought difficulties to both China and the US. The latest IMF world economic outlook put the world economic growth at 3.5% only in 2013. As the world two largest economies, both the US and China have greater responsibilities in supporting the world economic growth. The US accounts for 22% of world output and will contribute 0.44 percentage points to world growth, with a growth rate of 2%. China, with 11% of world output, could contribute 0.83 percentage points to world economic growth by a GDP growth of 7.5%. The two countries combined will pull the world economy by 1.2%. The consideration most essential in the bilateral business relations is keeping a stable growth in each economy. AmCham White Paper in 2012 showed that the top risk US business in China faced was a hard landing in Chinese economy. Approaches to the specific issues such as IPR, market access, cross border investments, etc. should be helpful for stable economic growth, not vice versa.
Renminbi exchange rate issue is also in the checklist of Jacob Lew’s demands. Immediately upon Lew’s return, 101 US congressmen launched a fresh manoeuvre to activize the currency bill, according to Reuters. However, Renminbi exchange rate issue should also be put in a global context. According to the recent G20 finance ministers and central bankers meeting, the real major risk in world financial market today is not Renminbi but a currency war. With world leading economies pursuing an easy money policy, competitive currency depreciation is highly possible. A big concern goes like that: “Is Japan to fire the first shot in a 1930’s style currency war?” (Keith Fitz-Gerald in Money Morning, Feb. 12, 2013). The sharp fall of Yen has reminded the world of the 1930s tragic lesson. Bank of England announced the abandoning of gold standard in 1930, causing the Pound Sterling a 30% fall. In order to offset the Sterling devaluation, US Dollar, German Mark, French Franc, Swedish kroner all devalued, thus aggravating the world depression. Bank of International Settlements latest data shows that, by February 2013, the real effective exchange rate of Yen fell by 18.2% over a year ago. Brazilian Real and Indian Rupee fell by 8.3% and 4.3% respectively. The dollar rose by 1.5%, and the Euro by 1.8%. Renminbi had the biggest appreciation, rising by 5.3%. In other words, China has made a major contribution to the world currency market stability. As both the US and China have major responsibilities in a stable world currency market, what we need to do is a stable dollar and stable Renminbi, not any major Renminbi appreciation for the US interest.
Moreover, the traditional perception that a more expensive Renminbi will help US exports has been proved not workable. Since Renminbi’s floating in 2005, it has appreciated by 31% against the dollar. However, US trade deficit with China increase by $ 43.2 billion during this period, while her global trade deficit shrank by $112.7 billion. The fundamentals behind trade imbalance are the global value chain and respective positions of each economies. China, on her part, will continue to reform the exchange rate mechanism based on market forces. Good interaction between the two countries is envisaged to protect the world currency market from a major competitive depreciation risk and support a strong, balanced and sustainable world economic recovery, so as to support the common interest of both.
He Weiwen is co-director, China-US/EU Study Center, China Association of International Trade.