China has expressed its intention, at home and abroad, to continue the Strategic and Economic Dialogue with the United States and strengthen collaboration in economic policy coordination and responses to global issues.
The stance of cooperation with the United States is highly likely to continue in the next administration.
The fourth round of the U.S.-China Strategic and Economic Dialogue was held in Beijing on May 3 and 4.
The Chinese government took certain preliminary steps to ensure the smooth running of the dialogue.
On May 2, the renminbi-dollar exchange reference rate, which is announced every morning, was set at its highest level since the reform of exchange system started in July 2005.
Together with the widening of the renminbi-dollar exchange rate fluctuation band that was implemented in mid-April, the move is seen as partly intended to soothe U.S. demands for acceleration in the pace of the exchange system reform.
Chinese human rights activist Chen Guangcheng sought asylum in the U.S. Embassy in Beijing shortly before the Strategic and Economic Dialogue.
The Chinese government did not put off the talks, citing the incident as a reason, although it strongly demanded an apology and assurances to prevent a recurrence.
It is assumed that China partly was politically motivated not to spoil its relations with the United States in the run-up to a change in its political leadership.
According to Chinese media reports, China is beginning to diversify its foreign assets and it already owned Japanese government bonds worth around $231.2 billion as of the end of 2011.
However, it is estimated that a large majority of China’s foreign assets are still dollar-based, including some $1.17 trillion worth of U.S. bonds as of the end of March 2012.
For that reason, it is assumed that it was vital, from the standpoint of protecting asset value, that the Strategic and Economic Dialogue go ahead as scheduled and that the importance of U.S.-China cooperation be promoted at home and abroad.
The agenda of the fourth round of the Strategic and Economic Dialogue included a variety of items, such as the strengthening of the functions of the International Monetary Fund, worldwide security issues and the reinforcement of environmental cooperation.
As for the promotion of sustainable and balanced economic growth alone, a wide range of issues were debated and a number of agreements were reached.
Of the agreements reached concerning sustainable growth, the following three are of particular note.
The first is the coordination of macroeconomic policy.
The United States will work to reduce its fiscal deficit and increase its gross savings rate, while increasing investments and exports, and China will focus on increasing domestic demand, particularly consumption.
If the agreements are limited to these measures, they may be interpreted as a reaffirmation of bilateral economic policy coordination since the first round of the U.S.-China Strategic and Economic Dialogue in 2009.
However, the “Economic Track of the Fourth Meeting of the U.S.-China Strategic and Economic Dialogue” shows that the Chinese side made more commitments, which include the promotion of structural tax relief and the geographical expansion of a trial switch from a business tax on sales to a value-added tax after tax credit on purchases.
The document also mentions efforts to reduce import duties on some consumer goods by the end of 2012.
These are concrete measures that are expected to lead to the development of the service industry as well as expanded consumption.
It can be said that the promotion of cooperation with the United States in terms of economic management has begun to fit with the aims of the Chinese government.
Second, there has been advancement in the strengthening of bilateral economic ties and a softening of points of conflict.
The agreement to speed up negotiations on a bilateral investment agreement is a prime example of the former.
As an example of the latter, the U.S. side showed a clear intention to welcome the widening of the renminbi-dollar exchange rate fluctuation band, while it is based on the assumption that Chinese authorities will continue with the exchange system reform.
The document also emphasized efforts to promote exports of consumer-use high-tech products to China apparently as a result of compromise to mitigate points of conflict.
The United States hopes to prevent the diversion of technology to military purposes and expand its exports to China, while China is anxious to increase imports of high-tech products to enhance its own industries.
With a matching of the intentions of the two sides, it may be understood that the promotion of exports of consumer-use high-tech products was included, rather than whether restrictions on high-tech exports to China are to be relaxed.
The third point is collaboration and cooperation in tackling global issues.
Attention was paid to China’s reaction to the Trans-Pacific Strategic Economic Partnership Agreement (TPP), in which the United States is playing a leading role, as part of efforts to promote economic deregulation.
Discussions in this area, however, only went so far as agreeing to strengthen the exchange of information, such as on the China-ASEAN free trade agreement.
Still, it is worth noting that promoting U.S.-China cooperation in shale gas development and environmental conservation, as well as the “encouragement of responsible production” by the two countries, was included in the list of achievements of the Strategic and Economic Dialogue.
The United States and China are thought to have abundant resources of shale gas. While it is expected to be a promising source of energy in the future, concerns have been expressed about its environmental impact.
The fact that the world’s two largest energy consumers, China and the United States, have agreed to accelerate shale gas production, while paying careful attention to environmental aspects, is an important development that has the potential to lead to a long-term, stable supply of global energy.
The Hu Jintao administration has held strategic and economic dialogues with the Barack Obama administration once a year involving key ministers.
The prevailing view in China is that these dialogues have contributed to greater collaboration with the United States.
Allowing China to respond appropriately to U.S. demands, and occasionally refusing them, the talks have been praised as being a stabilizing force that has softened U.S.-China conflict.
Noting that the United States will hold a presidential election and that China will bring in a new leadership this year, official reports have stated that the new leadership will respect the consensus obtained during the latest round of talks and the agreements signed.
As long as these arguments are not entirely refuted, it appears that China will continue dialogue with the United States and maintain policy coordination in economic and other fields under the post-Hu administration.
* * *
Junya Sano is a senior economist at the economics department of the Japan Research Institute.
This report was published in the July 2012 edition of Asia Monthly, an English-language publication of the institute, and was edited by The Asahi Shimbun. The original report is available at (http://www.jri.co.jp/MediaLibrary/file/english/periodical/asia/2012/07/contents.pdf).
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