Hillary in China: Winning Friends -- But Not Influencing People

☆520China☆

http://www.huffingtonpost.com/michael-a-santoro-and-wendy-goldberg/hillary-in-china-winning_b_170345.html

Secretary of State Hillary Clinton wants to be the Obama administration's point person on relations with China. In that light, how should her visit to Beijing last week be evaluated? The best that can be said is that the last thing the U.S. needs right now is another global problem, and she kept the relationship on an even keel. A generous assessment of her performance is that her non-confrontational approach during a period of much economic anxiety -- in both the U.S. and China -- successfully laid the groundwork for future communications in which she can be more influential with China on pressing issues including fair trade, safe trade, human rights and intellectual property.

However, the less generous verdict on her trip is that the statements she made there went farther than they needed to. By explicitly stating that it was inappropriate to discuss human rights during a time of crisis for the world economy, she left human rights activists high and dry. Never mind that she took a stand diametrically opposed from the one she took during her presidential campaign and chose a viewpoint dramatically different than President Clinton's -- that those in China opposing the emergence of human rights were "on the wrong side of history." Americans well understand that this first trip might not have been the appropriate time to make a very strong statement on human rights. The problem is that her statements went too far in the other direction; it would have been better if she'd said nothing at all. The only explanation is that she prepared for her trip by taking advice from the same business people -- deeply invested in an outmoded model of doing business with China -- who had the ear of former Treasury Secretary Henry Paulson, the Bush administration's China point man. We hope this is not an early indicator that she will repeat the same mistakes as Mr. Paulson, who did a very poor job representing U.S. interests.

Here's how the 'old' model works: Foreigners make investments in China in order to build China's capacity for exporting cheap goods into foreign markets; consumers in the U.S. and Europe load up debt on their credit cards to buy these cheap goods; and the circle is completed when China purchases U.S. Treasury securities that enable the U.S. spending binge to continue. However, it's clear that this model is now broken. Since U.S. consumers aren't buying as many Chinese goods, and foreign investment in China is shrinking, Chinese factories are in the position of having to lay off tens of millions of employees -- 35 million by official Chinese statistics, and projected to rise to 50 million by year-end. What both countries need right now is a soft landing away from this broken business model. For the U.S., this means China continuing to buy our Treasury securities; for China, it means no talk of U.S. protectionism. (Note: In our last post, we discussed the real meaning of protectionism: http://www.huffingtonpost.com/mi ... ts-ch_b_168056.html ) While this soft landing is fine for now it's not a permanent solution, and it's why the diplomatic relationship between the U.S. and China must be reinvented. Maybe the time for that is not Secretary Clinton's first official trip to China, but given how quickly economic change is occurring in both countries, it's going to have to be done soon.

The worrisome aspect of Secretary Clinton's 180-degree reversal is that it is part and parcel of the old model and plays into the most fundamental misperception about the U.S.-China relationship: That the only way you can be perceived as a "good friend" to China is to ignore China's evident problems and never raise them as issues. Under the old paradigm, potentially confrontational issues like safety, fair trade, intellectual property, rule of law, etc., were swept under the rug. An example: After one word from China's negotiators that U.S. concern about product safety injecting "disharmonious tones" into our relationship, former Secretary Paulson meekly agreed to a watered-down agreement on drug safety. This just won't do in the future. The Obama administration is going to have to find a way to reach out and engage China constructively on these issues, for the sake of both countries.

Even Secretary Clinton's public statements about China buying U.S. debt were unworthy of an official U.S. representative; using her time on Chinese TV to plead with the Chinese to buy our Treasury securities was an unnecessary and sorry spectacle. Secretary Clinton committed the same error as did Henry Paulson, i.e. miscalculating the balance of power between the U.S. and China when it comes to economics. The fact is that this is not the China "that can say no," as was said of Japan when that country was buying up Treasury securities over two decades ago. Bottom line: China needs to buy our treasury securities right now for the same reason that's held true for the last two decades - they're critical to its export-driven economy. An analysis of the Chinese press coverage surrounding Secretary Clinton's visit tells us that she would have done much better in simply talking about what the U.S. can do for China rather than what China can do for the U.S. They're perfectly aware that buying our Treasuries has positive implications for us; what they wanted to hear from her was that, for the time being at least, the trade lanes will remain open, and that they'll be getting a trade "bang" for their buck/yuan.

To be fair, there was one notable exception to Mrs. Clinton's wholesale inability to deal with touchy issues on this visit: the deft manner in which she and her Climate deputy Tim Stern managed to introduce CO2 emission issues into the conversation with China, which has passed the United States as the country with the world's largest carbon footprint (the U.S. and China together are responsible for over 40% of the world's CO2 emissions). While Mrs. Clinton didn't walk away with any agreements, she did manage to successfully put this on the table as an issue of mutual concern.

Secretary Clinton will no doubt be welcomed back to China in the future. The question is whether or not she is willing to step away from a crumbling paradigm of U.S.-China relations and provide the reset of the relationship that both countries desperately need to move forward, both during a time of massive economic uncertainty and beyond. The election of President Obama was about change. It is comforting to think that the "good old" U.S.-China relationship is something we can all cling to in this moment of global uncertainty. However, the failure to grasp how and why that relationship needs to change could very well create the instability we are trying to avoid.
In the next few weeks we'll be observing firsthand from Beijing how the U.S.-China economic relationship is evolving.