China's shadow followed Obama throughout Asia

McClatchy NewspapersNovember 13, 2010 

WASHINGTON — As President Barack Obama wrapped up his tour of Asian democracies this weekend, the region's big non-democracy, China, has been an omnipresent factor in his attempt to strengthen U.S. ties with India, Indonesia, South Korea and Japan.

There's no question that the entire region has unique appeal for the U.S. as it tries to position itself for resumed economic growth.

"This is the fastest-growing part of the world," Obama said at the meeting of leading economic powers in Seoul, South Korea. "And we've got to be here and we've got to work."

And each of the four countries has its own foreign policy significance — Indonesia for U.S.-Muslim relations and terrorism, and India for the war in Afghanistan, nuclear security, counter-terrorism and climate change, to name just two.

Yet China's rising economic and military clout, and the stagnant U.S. economy, inevitably asserted themselves at each stop — in Obama's speeches, in foreign leaders' remarks and in questions from the public and the press.

It was front and center at the G-20 in Seoul, where China chastised the U.S. for acting to weaken the world's sole reserve currency, and Obama lashed out at China's undervaluation of its yuan, calling it an "irritant" to the U.S. and other trading partners.

China was unmistakably part of the narrative when Obama told college students in Mumbai, India, that "for most of my lifetime, the United States was such a dominant economic power" that it always met other nations "on our terms," but "because of the incredible rise of India and China and Brazil and other countries. . .we're going to have to compete."

Obama's call to give India permanent membership on the United Nations Security Council carries implications for China, even as some foreign policy analysts said Obama should have demanded more promises from India in return.

India's Prime Minister Manmohan Singh defended the U.S. over China's and Germany's objections to the Federal Reserve's move to purchase $600 billion in U.S. government bonds to stimulate the economy. The move also weakens the dollar, which critics say artificially helps exports.

But an Indian journalist was quick to press Obama on the "bogeyman" of outsourcing to India, saying that U.S. job losses "are really in the manufacturing sector, and they're going to China, which is the greater threat."

In Jakarta, President Susilo Bambang Yudhoyono told journalists that "it is Indonesia's hope that China and the U.S. relations will continue to flow well because if something happens between those two states, it will have severe impacts to not only countries in the region, in Asia, but also to the world."

In Seoul, Obama failed to gain enough support from world economic powers at the G-20 summit for U.S. proposals to rebalance global trade or get the Chinese to revalue the yuan.

While Obama looked defensive and ill-positioned, Chinese President Hu Jintao ruffled no feathers in public, saying that China would work to develop its domestic economy and urging conference participants to work together toward more global economic stability. There didn't seem to be any reason for Hu to do otherwise; he had the upper hand.

Obama's failure while in Seoul to finalize a U.S.-Korea trade agreement in the works since the Bush administration, meanwhile, could weaken Asia's expectations for an aggressive U.S. trade policy, and boost China in the process.

"One thing you can be pretty confident about in the future of Asia is that China's economic role is going to be pretty large throughout the region," said Kenneth G. Lieberthal, director of the John L. Thornton China Center with the Brookings Institution.

"Right now, the United States is doing quite well on the security side in Asia," Lieberthal said. "Everyone is coming to us and saying, 'Please increase your presence and be more robust'; everyone except China.

"But, frankly, if China ends up being the one to really capture the economic upside of the region and we capture the security needs of the region, then China captures the region as a profit center and we capture the region as a cost center. And that's not where we ought to want to be."

As the U.S. struggles to exit its economic downturn, China, the second-largest economy, is growing by leaps and bounds.

"There are serious concerns in China that the U.S. is pursuing a containment policy toward China," said Zhang Yebai, a retired analyst of China-U.S. relations at the Chinese Academy of Social Sciences, a state research center.

The yuan is estimated to be undervalued by some 20 percent. But Chinese analysts say any sudden adjustment could create havoc with the nation's export manufacturers, displacing Chinese workers and triggering social instability.

The lack of progress with China on currency issues has put U.S. Treasury Secretary Timothy Geithner in a bind. Twice this year, he's delayed a congressionally mandated report on whether or not China manipulates its currency, the second time until the president's Asia trip has concluded.

Ted Truman, a former Treasury Department official, now a senior researcher at the Peterson Institute of International Economics, said the administration "is in an awkward position. They want to be reasonable, but China is not helping."

Chinese President Hu is scheduled to visit Washington early next year, and that means Treasury officials must quickly make a determination or take political heat if they try to put it off until after Hu's visit.

The Obama administration also has stepped up unfair trade probes. On Friday, the Commerce Department announced a probe into imports of Chinese multilayered wood flooring.

Scott Paul, the executive director of the Alliance for American Manufacturing, which includes small U.S. manufacturers, said that "unless China knows what the consequences are . . . they won't actually do anything."

For all the rancor between the U.S. and China, which can sometimes echo Cold War tensions, there's also a sense the world's two largest economies have no choice but to work together.

They did $366 billion in trade last year, and Geithner has warned U.S. lawmakers to not lose sight of how import a market China is for U.S. exports.

Products made or grown in the U.S. and shipped to China grew by 50 percent during the first half of this year, he said, and were up 20 percent from pre-recession levels.

That duality of close business ties and such sharply divergent strategic interests is in many ways unchartered territory for major world powers.

"It's not what we saw before, when you had the age of empires there wasn't economic interdependence to the degree we see now," said Philip Levy, an international economics analyst at the conservative American Enterprise Institute in Washington.

Zhang, the analyst in Beijing, described a balancing act between security and economic goals. "China hopes to further develop its economic relationship with the United States, but it keeps alert about U.S. security issues," he said.

(Talev reported from New Delhi and Washington. Hall reported from Washington. Lasseter reported from Seoul, South Korea.)

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