Sunday, March 07, 2010

China and U.S. Relations Remain Tense

Sources: China Signals Defiance on U.S. Relations; China Foreign Minister Says U.S. Ties “Disrupted;” American Envoys in Beijing to Mend Relations; Chinese Bank Chief Says Currency is Unlikely to Rise.

Tensions between the United States and China have been on the rise in recent months as the two nations clash on policies concerning internet censorship, Iran and U.S and Taiwanese arms deals. One issue in particular that has created friction between the two powerful nations is China’s fixed exchange rate policy. At a press conference Saturday, March 6, China’s Central Bank Governor, Zhou Xiaochuan, signaled that eventually China would abandon its exchange rate policy, but gave no indication of a date for that change.

China has since late 2008 kept its currency, the renminbi (also called the “yuan”) from appreciating against the U.S. dollar. This policy has kept the yuan artificially low as compared to other currencies and as a result, has kept the price advantage of Chinese exports. The Governor called China’s policy a response to the global financial crisis, indicating that sooner or later the policy would be abandoned but also acknowledging that the timing of that change would be critical. China has been heavily criticized for its currency policy, which some countries have called an unfair advantage. President Obama says the policy keeps the prices of Chinese exports low, but disadvantages other economies who cannot compete with those prices. Gov. Zhou indication that the Country’s policies will eventually change is not enough for some critics, who do not believe those changes will come soon enough.

While Gov. Zhou’s comments might have signaled optimism that China and U.S. relations were on the rise, the defiant tone of China Foreign Minister Yang Jiechi’s speech Sunday gave reporters a very different picture of Chinese attitudes towards the U.S. Mr. Yang expressed his displeasure with President Obama’s decision to meet with the Dali Llama in February of this year, saying, "The responsibility for the difficulties in China-U.S. relations does not lie with China." Mr. Yang also commented on its refusal to acquiesce to U.S. pressure that China sanction Iran for its nuclear weapons program. Mr. Yang expressed his belief that sanctions would not solve the issue and that further diplomacy was needed before a resort to sanctions was necessary. A week prior to Mr. Yang’s comments, the Obama Administration had sent two officials to Beijing to discuss Chinese policies in Iran.

President Obama has promised to get tougher with China on the currency issue, and in April the U.S. Department of the Treasury will decide whether to officially attach the label of “currency manipulator” to China as part of an annual process.

Discussion Questions:

1. Is China’s decision to freeze the Yuan’s value against the dollar detrimental to the growth of other emerging economies that compete with Chinese exports?
2. What result if the Department of the Treasury decides to label China a “currency manipulator?”
3. Does China’s refusal to participate in sanctions against Iran dilute the combined sanctions of other nations? How?

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