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U.S. Economic Woes Loom Over Biden Visit to China

http://www.nytimes.com/2011/08/14/world/asia/14china.html
August 13, 2011
U.S. Economic Woes Loom Over Biden Visit to China
By EDWARD WONG [Obama white house] [112th congress, 1st session] [WH, NSC, and Veep’s office, probably state too] [continuity in USFP] [Veep Biden prepares to visit China to work on Sino-U.S. “partnership”] [plenty of bumpy roads ahead as there are plenty of smooth ones] [it’s becoming a truly important relationship for both] [meanwhile, economic woes in US weaken Biden’s bargaining position] [recall the Chinese have been telling US it has serious debt problem since 2007-2008] [a rather famous exchange with Hank Paulson, Bush’s treasury secretary who was friendly with Chinese] [followup] [use psci 355-455] [use fall 2011] [*]
WASHINGTON — Over the winter, officials in China and the United States were trying to turn a new page in relations. In January, during a state visit to Washington by President Hu Jintao, leaders worked hard to dispel the rancor that had been slowly building. Soon after, Vice President Joseph R. Biden Jr. committed to an earlier proposal to meet this summer with his Chinese counterpart, Xi Jinping, who is expected to succeed Mr. Hu next year.

http://www.nytimes.com/2011/08/14/world/asia/14china.html
August 13, 2011
U.S. Economic Woes Loom Over Biden Visit to China
By EDWARD WONG [Obama white house] [112th congress, 1st session] [WH, NSC, and Veep’s office, probably state too] [continuity in USFP] [Veep Biden prepares to visit China to work on Sino-U.S. “partnership”] [plenty of bumpy roads ahead as there are plenty of smooth ones] [it’s becoming a truly important relationship for both] [meanwhile, economic woes in US weaken Biden’s bargaining position] [recall the Chinese have been telling US it has serious debt problem since 2007-2008] [a rather famous exchange with Hank Paulson, Bush’s treasury secretary who was friendly with Chinese] [followup] [use psci 355-455] [use fall 2011] [*]
WASHINGTON — Over the winter, officials in China and the United States were trying to turn a new page in relations. In January, during a state visit to Washington by President Hu Jintao, leaders worked hard to dispel the rancor that had been slowly building. Soon after, Vice President Joseph R. Biden Jr. committed to an earlier proposal to meet this summer with his Chinese counterpart, Xi Jinping, who is expected to succeed Mr. Hu next year.
But as Mr. Biden prepares to depart for China on Tuesday, a new uncertainty looms over relations. [*]
Chinese leaders are asking sharp questions about the strength of the American economy and American leadership, because of the government’s struggle to meet its debt obligations and the partisan schisms and political paralysis that turned a problem into a crisis. [you better believe it] [they are into US T bills to tune of over $1 trillion] [*] Mr. Biden postponed his original departure date in July to help hammer out the agreement that forestalled default on some obligations but failed to avert a downgrade of America’s AAA credit rating by Standard & Poor’s. Xinhua, the state news agency, published a commentary demanding that the United States “cure its addiction to debts” and “live within its means.”
The uncertainty about America goes straight to China’s pockets: it holds more than $1.1 trillion in United States Treasury securities, making it the country’s largest foreign creditor. Some ordinary Chinese have publicly criticized the Chinese leadership for investing so much in American government securities.
Europe’s continuing sovereign debt miseries, the specter of a possible double-dip recession in the United States, and the turmoil in global markets last week have only heightened anxiety in China, whose economic growth depends to a large measure on its vast export sector.
Zhu Feng, a professor of international relations at Peking University, said he attended a meeting at the Ministry of Finance last week where officials were wringing their hands.
“The feeling of everyone was that the world economy has just suddenly become very unpredictable,” he said. “No one wants to see the U.S. economy keep going downhill and a new financial crisis. China and the U.S. are very important in keeping the global economy stable.”[*]
As they get to know each other, Mr. Biden and Mr. Xi will no doubt discuss some of the security issues that have divided the two countries — American arms sales to Taiwan, North Korea’s nuclear program and tensions over the South China Sea. But the economic issues have moved to the fore. [he’ll have decidedly weak hand] [*]
“The primary purpose of the trip, which was planned before recent economic problems, was to build the relationship with Xi Jinping,” said Jeffrey A. Bader, who until April was the senior director for East Asian affairs on the National Security Council. “Recent events in the economic sphere have undoubtedly put the U.S. economy and U.S. currency on the agenda.”
Da Wei, deputy director of the Institute of American Studies at the China Institutes of Contemporary International Relations in Beijing, said, “U.S. Treasury debt is the biggest concern since it’s about the safety of China’s financial investment.” [*]
As in the United States, domestic troubles in China have been taking precedence over foreign relations. The efforts of Chinese leaders to maintain social stability have been challenged this summer by ethnic violence in the western region of Xinjiang and a remarkable surge of public criticism over the government’s handling of a deadly high-speed rail crash in Zhejiang Province.
Perhaps most unsettling for the country’s leaders is the creeping rise in the inflation rate; China’s consumer price index went up 6.4 percent year-on-year in June, the steepest rise in three years. Analysts say average inflation for the year is certain to surpass the 4 percent benchmark Chinese leaders had set. Though it may be peaking, “inflation is likely to remain the policy priority well into the fourth quarter,” Alistair Thornton, a China analyst at IHS Global Insight, wrote in a report last week.
Inflation puts China in much more of a policy bind if the West gets mired in another deep slump. In 2008, when the global financial crisis hit, China relied on stimulus spending and loose lending by state banks to pump up infrastructure building and other capital-intensive projects to maintain economic growth. Now, Chinese officials are concerned about rampant spending and are trying to tighten bank lending.
One point of tension between the United States and China has faded into the background in recent months: China’s valuation of its currency. The Obama administration had long pushed China to appreciate its currency to correct trade imbalances and help restructure the world economy. The Chinese government was reluctant to do so, fearing the cost to exports. But an undervalued renminbi contributes to inflation, so China has been slowly letting the renminbi rise against the dollar.
The issue may also be losing some of its weight in American politics. The International Monetary Fund pointed out in a report last month that a stronger renminbi would not necessarily bolster job creation in the United States.
So instead of Mr. Biden pressing the Chinese on their currency, Chinese officials are likely to be pressing him about the stability of the dollar. All the while, they will be trying to gauge the strength of President Obama, having witnessed the difficulties he faced in persuading Republicans in Congress to raise the debt ceiling.
“It always encourages good behavior in China when they think they’re dealing with a strong U.S. president,” said Kenneth G. Lieberthal, a China scholar at the Brookings Institution who served on the National Security Council in the Clinton administration. “It’s hard to see how recent events would have created an impression that he’s a strong leader.”
Li Bibo contributed research from Beijing.

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