U.S. Treasury Secretary Henry Paulson heads to Beijing next week as China’s currency reserves hit the $1 trillion mark and the U.S. dollar slumps. Ben Bernanke, Federal Reserve chairman, will join the Paulson delegation, which hopes to talk Beijing into opening up its economy (AP), letting its currency rise, and cracking down on piracy. The trip comes as the Bush administration finds itself under pressure to narrow its ballooning trade deficit with China.
Paulson’s relationship with China looks “promising,” says Albert Keidel of the Carnegie Endowment for International Peace. But Bloomberg columnist William Pesek warns the White House may fail to get what it wants out of the trip in part because of China’s growing global leverage. While the Iraq war became a U.S. preoccupation, writes Pesek, “China traveled the globe and charmed many a national leader,” increasing its international clout.
China’s economic might is one challenge, but the Bush administration also worries about its growing military strength. Washington hopes to use trade mechanisms to limit the technological advance of China’s armed forces. This summer the U.S. Commerce Department proposed a China military “catch-all” rule requiring new licensing agreements on U.S. exports with the goal of impeding Beijing’s acquisition of military-boosting technology. The rule is in the final days of circulating for public review before implementation. The United States currently blocks military exports to China, so the rule serves as a means to stem the modernization—and associated threat—of China’s military. Critics say the rule jeopardizes U.S. trade with China (Asia Times Online) by limiting the export of dual-use goods.
China has adopted a policy known as “peaceful rise,” aimed at broadening its global influence through diplomacy, investments, and trade agreements. At the same time, it has also engaged in a program to modernize its military. A new Backgrounder looks at the transformation of the People’s Liberation Army, the main branch of China’s armed forces, and U.S. suspicion of Beijing’s military aims. Beijing’s primary strategic goal of deterring Taiwan’s independence ambitions is a source of friction with the United States, which pledged military support to Taiwan in a 1979 agreement. In its latest annual report to Congress, the U.S.-China Economic and Security Review Commission says the growth of China’s military “casts a shadow on its self-described ‘peaceful rise.’” The survey cites a Pentagon report’s charge that China understates its military budget by as much as $70 billion. Yet the Federation of American Scientists, a watchdog group, says the Defense Department exaggerates the Chinese military risk to justify U.S. military spending.
U.S. attempts to slow the Chinese soft power rise come at a time of waning American influence in Asia, demonstrated by the high profile of Beijing rather than the United States at the recent Asia-Pacific Economic Cooperation (APEC) summit in Hanoi. Elizabeth Economy, CFR senior fellow, says in a CFR.org interview with Bernard Gwertzman that in Asia, the Bush “legacy will not be a terribly positive one.” Meanwhile, China’s influence grows at U.S.expense, demonstrated recently by Beijing’s leverage with North Korea, and its hosting of an African summit. However, in his new book China’s Trapped Transition, Minxin Pei, director of the China program at the Carnegie Endowment for International Peace, doubts the Chinese Communist party’s ability to sustain and manage Beijing’s economic boom.