The arrival of Chinese President Hu Jintao in Washington Tuesday evening brought the U.S. face to face with the leader whose nation many Americans believe will supplant them as the world’s most dominant super power.
Time will tell whether China fades like once-cocky Japan did in the 1980s or whether it does indeed replace the U.S. at the top of the global heap. But one thing has been clear from China’s behavior over the past year: they believe they are in the driver’s seat.
“The Chinese now have a new boldness on the world scene,” said Steven Dunaway, an international economics senior fellow at the Council on Foreign Relations.
The financial crisis of 2008 in particular altered the dynamic between the U.S. and China. It accelerated the decline of the U.S. and the rise of emerging economies such as China’s, sharpening the contrast between the debtor and consumer American culture and China’s exploding mercantilist growth.
“The global financial crisis further gave the Chinese leaders and foreign policy analysts a sense that the U.S. was in decline and, you know, for some, that the moment for China was now and so they ought to seize the moment,” said Elizabeth Economy, director of CFR’s Asia Studies program. “As the United States seemed to be receding, China seemed to be expanding.”
Treasury Secretary Tim Geithner acknowledged this dynamic in a speech he delivered a week ago to lay out the Obama administration’s economic platform heading into the U.S.-China summit in Washington.
“That crisis has left lasting scars that will take years to repair. And it has left a growing gap between the growth trajectories of the large developed economies and the rapidly growing emerging economies,” Geithner said. “We are likely to grow at about half the rate of the major emerging economies.”
He added that the U.S. will grow at “about twice the rate of Europe and Japan.” But that will hardly be an accomplishment.
Experts said that Hu’s visit – in addition to likely being at a significant moment in world history – also brings into focus the way the U.S.-Sino relationship has changed since Obama took office.
“There’s been a pretty significant shift … in the way that the U.S. is approaching China now,” Economy said. “I think at the outset of the Obama administration there was a lot of hope about potentially expanding the U.S.-China relationship from what had taken place during the Bush years, raising it to a new level.”
But, she said, a series of developments over the past 24 months – Beijing’s suspected involvement in hacking into Google and Western governments, their sometimes lackluster approach toward restraining North Korea, an increasingly aggressive Chinese military, and their outburst at the Nobel committee for awarding the Nobel Prize to political activist Liu Xiaobo – all convinced the Obama administration that “being nice to China wasn’t the answer.”
“In fact, Chinese respect strength,” she said.
Thus U.S. officials – Geithner in particular – have not been shy about calling on the Chinese to do more to allow their currency, the Renminbi, to rise in value compared to the dollar. The U.S. has long complained of China’s artificial suppression of the Renminbi’s value, which enables them to export to markets such as the U.S., where consumer demand brings in large revenues in exchange for cheap goods.
The Chinese have allowed a small rise in the value of the Renminbi since last June, but it is still just above 15 cents to the dollar.
“This is not a tenable policy for China or for the world economy,” Geithner said in his speech. “We believe it is in China’s interest to allow the currency to appreciate more rapidly in response to market forces.”
But Hu has been even more forceful in the days leading up to his visit to the U.S. in his challenge to the American dollar as the world’s dominant currency, saying in a written answer to a Wall Street Journal request that “the current international currency system is the product of the past.”
Hu’s comments – and those of other Chinese government officials in the past – have largely been interpreted as seeking to pressure the U.S. into taking action to get its deficits and national debt under control, to avoid sparking a debt crisis that could cause the dollar to inflate. Such an outcome would greatly devalue the significant amount of U.S. Treasury bills held by the Chinese.
A Chinese scholar, Jiang Yong from the China Institutes of Contemporary International Relations, told the Financial Times that undercutting U.S. dominance of the monetary system is “as important as New China’s becoming a nuclear power.”
But while Hu pointed to Beijing’s efforts at making the Renminbi more of a commonly used currency in southeast Asia, experts such as Dunaway downplayed the teeth behind such rhetoric.
“A lot of the discussion about the role of the dollar is, in essence, smoke to distract attention from China’s exchange-rate policy,” Dunaway said. “China now has roughly $2.9 trillion US in reserves, and they face the possibility of a significant capital loss on those reserves if the renminbi appreciates vis-a-vis the dollar.
Also, Dunaway added, “at the end of the day in terms of a reserve asset is it’s not something that’s created … it’s chosen by the markets.”
It is against this backdrop that Hu will arrive at the White House Wednesday morning for a welcome ceremony after an intimate dinner with Obama Tuesday night. The dinner, in the White House residence, included only Obama, Secretary of State Hillary Clinton, and National Security Adviser Tom Donilon. Hu brought two of his own aides, though the White House would not say which ones.
On Wednesday, Hu and aides will attend meetings with Obama and then the two leaders will hold an afternoon press conference, in one of the few times that a Chinese premier will subject himself to such scrutiny. Wednesday night, the White House will host its second state dinner of the Obama presidency.