Globalaffairs

Issue 20/April-June 2010
By Niruban Balachandran

From finger-pointing to reciprocal accusations of stubbornness to seemingly endless differences in opinion, America’s and China’s increasingly tense yet tightly-interdependent relationship will continue to give policymakers from both nations multiple sources of irritation (and rising blood pressures) over the next several months. Here are five points of conflict between America and China to watch this year.

Flashpoint 1: Google’s Withdrawal from China

The Situation:

California-based Google Inc. recently announced that a series of Chinese government cyberattacks on its Gmail accounts and disturbing Internet censorship incidents have compelled the company to withdraw its Internet search operations from China. (1) As the protection of human rights is a central goal of US foreign policy (2), Secretary of State Hillary Rodham Clinton recently delivered a high-profile speech critiquing China and other governments for censoring the Web, suppressing public dialogue and barring their citizens from accessing knowledge online. (3) President Obama made similar overtures to this issue during his town-hall meeting with Chinese university students in Shanghai earlier this year. (4)

China’s Ministry of Information and Industry blocks Mainland users from searching for and accessing Web content on “sensitive” topics - especially those concerning the “three T’s”: Tibet (as in the CCP’s human-rights violations and pre-Olympics crackdowns there), Taiwan (as in its prospective independence) and Tiananmen (as in the 1989 Tiananmen Square Massacre).

There remains intense speculation about the ultimate rationale for Google’s withdrawal from China, with narratives ranging from the cynical (”Google’s negligible progress on both Chinese market share and financial gains compelled it to quit that market space“) to the ethical (“Google wanted to take a strong, moral stand in support of Internet freedom”). (5) Whatever the actual reasons are, Google’s bold opening salvo has effectively forced China and America to begin addressing this long-standing issue once and for all.

What Could Happen Next:

This is one of the first - if not the first - direct challenges to the Chinese government by a non-state actor, and Chinese government authorities still have refused to compromise on their Internet censorship activities. After days of angry condemnations and anti-Google rhetoric by Chinese state media during the standoff, Beijing is expected to struggle with the geopolitical and economic consequences of Google’s departure.

As political analyst Marc Hedlund remarked, “Google effectively has a foreign policy now.” (6) In the wake of Google’s announcement, two other large American tech companies operating in China, Dell and Go Daddy, have also threatened to withdraw from the 1.3 billion-person market (7) in order to send a strong message to Beijing: “Be accountable to your responsibilities under universal human-rights norms, or else risk ‘losing face’ while we (as well as our technology and capital) head for other markets.”

As for the consequences to China, Google’s departure will only further limit the already-restricted ability of Chinese citizens to acquire knowledge from the Web and interact with the outside world.

Flashpoint 2: Currency Exchange Rates

The Situation:

Since 2003, China has been manipulating its currency - the renminbi (yuan) - to keep it at an artificially low level to give it an unfair advantage in selling its exports. To America, this threatens both the competitiveness of its exports and the job security of its citizens. (8)

In a widely-discussed editorial in The New York Times last month, American economist and Nobel Laureate Paul Krugman wrote, “Tensions are rising over Chinese economic policy, and rightly so: China’s policy of keeping its currency, the renminbi, undervalued has become a significant drag on global economic recovery.” (8)

Despite strong calls by international leaders for China to cease manipulating its currency, Wen Jiabao, the Chinese prime minister, still stubbornly - and incorrectly - insists that the renminbi is not undervalued. (9) The Peterson Institute for International Economics estimates that the renminbi is undervalued by between 20 and 40 percent. (10) Nicholas R. Lardy, a China expert at the Peterson Institute, says, “They’re puzzled by the criticism. They think they should be praised for keeping their currency stable at a time of global turmoil.” (11) It is speculated that one of China’s motives for not allowing its currency to float is to compensate for the plunge in worldwide demand for Chinese exports during the global financial crisis. (12)

What Could Happen Next:

The U.S. Treasury might formally declare Beijing a currency manipulator in an official report to be published in mid-April. (13) Twice a year, by law, this report regularly identifies nations that “manipulate the rate of exchange between their currency and the US dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.” A multilateral organization such as the International Monetary Fund or World Trade Organization may intervene as well.

Krugman contends that the United States should call China’s bluff on its threat to suddenly sell American assets as retaliation: “It’s true that if China dumped its U.S. assets the value of the dollar would fall against other major currencies, such as the euro. But that would be a good thing for the United States, since it would make our goods more competitive and reduce our trade deficit. On the other hand, it would be a bad thing for China, which would suffer large losses on its dollar holdings. In short, right now America has China over a barrel, not the other way around.” (8)

Aware of this possibility, China’s Ministry of Commerce has recently urged U.S. multinational companies to step up lobbying the Obama Administration against taking “protectionist” measures over the renminbi. (14) These activities have already begun and may steadily increase over the next several months as China continues to face additional criticisms from the global community.

As per historical precedent, the Obama Administration and other governments might also further pressure the Chinese to let the yuan rise by imposing a temporary 10 to 25 percent tariff on imports from China until the latter finally concedes. (8)

Flashpoint 3: U.S. Arms Transfers to Taiwan

The Situation:

The Obama Administration approved the sale of $6.4 billion worth of high-tech weapons to Taiwan, including advanced Harpoon anti-ship missiles and Blackhawk helicopters. Since 1949 Beijing has regarded Taiwan as a renegade Chinese province rather than a separate nation, which sparked the former furious feet-stamping and shrill, strident condemnations when the sale was approved by Washington. (15)

Although most of the weapons sold to Taiwan were strictly defensive in nature, the Chinese government immediately suspended military ties with the Pentagon shortly afterward, and also summoned the U.S. ambassador for a rather protracted screed on the transaction’s implications for cross-Strait relations. (15)

According to the latest data released by the Stockholm International Peace Research Institute (SIPRI), imports of major conventional arms from the U.S. to Taiwan have increased considerably over the last ten years, much to the dismay of the Chinese government and its ambitions for eventual reunification. (16) (The SIPRI Arms Transfers Database tracks sales of seven categories of major conventional weapons: combat aircraft, air defense systems, armored vehicles, artillery systems, sensor packages, warships, as well as a variety of missiles.)

What Could Happen Next:

Sino-US military ties, diplomatic cooperation and bilateral dialogue could all be affected by the recent tiff. More specifically, China could continue to suspend high-level U.S. military visits for the next few months, including a trip by U.S. Defense Secretary Robert Gates that was originally planned for this year. (17) Although the U.S. military is legally bound to defend Taiwan as per the Taiwan Relations Act of 1979 (18), China might retaliate against the sale geopolitically by intentionally dragging its feet, stonewalling or postponing cooperation with the State Department and the Pentagon in multiple foreign-policy arenas: human-rights concerns, trade issues, diplomatic ties or nuclear proliferation (especially the six-party talks with North Korea and UN Security Council sanctions on Iran). Trade-wise, Beijing might also retaliate by slapping sanctions onto American defense companies involved in arms sales to Taiwan, such as Boeing Inc. (19)

The Pentagon, fully aware of points of contention such as the Taiwan arms sale, recently proposed the following in its Quadrennial Defense Review report (published this February): “The United States and China should sustain open channels of communication to discuss disagreements in order to manage and ultimately reduce the risks of conflict that are inherent in any relationship as broad and complex as that shared by these two nations.” (20) Whether these open communication channels prove to be actually effective in long-term diplomatic areas concerning Taiwan remains to be seen.

Flashpoint 4: The Dalai Lama

The Situation:

Although the Dalai Lama has met with every U.S. president since 1991 (21), a February meeting between President Obama and the Dalai Lama in the White House sparked anger and condemnations from China’s Foreign Ministry, complaining that “the U.S. act grossly violated the norms governing international relations.” (22) Many Chinese government officials believe that the exiled Tibetan spiritual leader and the Tibet Government in Exile (based in Dharamsala, India) is trying to win international political support for Tibet’s eventual independence from China. (23)

Beijing demanded that President Obama cancel the meeting with the Dalai Lama, even though the former informed Chinese President Hu Jintao in advance about the upcoming meeting during his January visit to China. (24) Brushing off Chinese complaints, President Obama welcomed the Dalai Lama to Washington and proceeded as intended. Despite the inevitable angry protests and teeth-gnashing by Beijing up until the date of the meeting, it allowed the U.S.S. Nimitz aircraft carrier and four American warships to anchor in Hong Kong for shore leave, just one day before President Obama’s meeting with the Dalai Lama. (25)

What Could Happen Next:

With very little change in its Tibet policy anticipated, Beijing is expected to continue to rail loudly against any contacts by international leaders with the Dalai Lama. Official visits between Dalai Lama and global heads of state have always been anathema to Beijing, the latter of which is demonstrably insecure about threats to China’s territorial integrity. (22) As a senior Chinese official recently described the Dalai Lama as a “political monk” in the aftermath of the Obama meeting, the Dalai Lama will most likely continue to be a source of frustration for Beijing this year.

Flashpoint 5: U.N. Sanctions on Iran

The Situation:

Over the past few weeks, high-level delegations - including U.S. Ambassador to China Jon Huntsman, British Foreign Secretary David Miliband and Israel’s diplomatic corps - have all visited Beijing in multiple attempts to persuade the Chinese government to support tougher U.N. sanctions against Iran over its nuclear program. (26) However, Beijing continues to oppose strong U.N. sanctions against Tehran, and is arguing for a diplomatic solution instead. (27) The Obama Administration and its allies are concerned that a failure to impose U.N. nonproliferation sanctions will increase the likelihood that Iranian scientists will eventually develop a nuclear weapon and destabilize the region. China is a permanent member of the U.N. Security Council, and therefore a key member of the six-nation mechanism formed around Iran’s nuclear issue (viz. the P5+1 grouping, which is also comprised of the United States, Russia, Britain, France and Germany). China can veto the U.N. sanctions if it chooses to block the nonproliferation resolution in the Security Council. (26)

Much of Beijing’s reluctance to help Washington impose sanctions on Tehran stems from core Chinese economic interests that are at stake in Iran. For example, last year China became Iran’s top trading partner, with bilateral trade worth US$21.2 billion and accounting for 14% of its imports and exports in 2008. (28) Iran is also China’s third-largest oil supplier and a base for many Chinese private-sector enterprises in the Middle East. (26)

What Could Happen Next:

If the U.N. Security Council fails to pass new sanctions as a result of Beijing’s veto or refusal to cooperate, Washington and Brussels may execute unilateral backup sanctions alone. For example, the U.S. Senate and House are considering punitive legislation that will penalize companies that do business with Iran. (29) A group of European foreign ministers have also recently declared that there is “consensus enough” for unilateral E.U. sanctions against Tehran, in case a U.N. resolution is eventually blocked by China. (30)

American officials are well aware that the tensions with China in other foreign-policy arenas may also be affecting Beijing’s stance on the proposed sanctions. “Chinese-U.S. differences over Taiwan and Tibet should not stop Beijing from backing strong sanctions to prevent Iran from developing a nuclear weapons capability,” U.S. ambassador Jon Huntsman said in a recent speech to Chinese university students in Beijing. “We look to China to support strong sanctions should Iran continue to stall on the dialogue track.” (31)

In the long term, China may incur a high geopolitical cost if it is perceived as intentionally obstructing the international community’s nonproliferation efforts. The cost will be even higher if Israel initiates pre-emptive military airstrikes on Iranian nuclear research facilities, if Tehran eventually gets the bomb, or if a nuclear arms race is sparked throughout the Middle East-North African region. Any of the aforementioned scenarios, if they occur, will inevitably be traced back to Beijing’s obstructionism during critical windows of opportunity. And that will be diplomatic capital that China cannot afford to squander in the eyes of the international community.

Niruban Balachandran
Executive Director of TeamBuilders International Ltd.

References:
1. http://www.googleblog.blogspot.com/2010/03/new-approach-to-china-update.html
2. http://www.state.gov/secretary/index.htm
3. http://www.state.gov/secretary/rm/2010/01/135519.htm
4. http://www.nytimes.com/2009/11/17/world/asia/17shanghai.html
5. http://www.nytimes.com/2010/03/24/technology/24google.html
6. http://radar.oreilly.com/2010/01/google-and-china-whats-the-rea.html
7. http://www.telegraph.co.uk/technology/google/7517291/Dell-and-Go-Daddy-threaten-to-follow-Google-out-of-China.html
8. http://www.nytimes.com/2010/03/15/opinion/15krugman.xml
9. http://www.nytimes.com/2010/02/05/world/asia/05diplo.html
10. http://www.iie.com/publications/interviews/interview.cfm?ResearchID=1396
11. http://www.nytimes.com/2010/02/04/world/asia/04diplo.html
12. http://www.speroforum.com/a/26795/CHINA–UNITED-STATES—New-Sino-American-tensions-over-yuan-and-trade
13. http://betaus.reuters.com/article/idUSN2414861520100225″>
14. http://www.cnn.com/2010/BUSINESS/03/16/china.lobby.currency.ft/index.html
15. http://www.nytimes.com/2010/01/30/world/asia/30arms.html
16. http://www.sipri.org/databases/armstransfer
17. http://www.reuters.com/article/idUSTOE60T00M20100130
18. http://www.economist.com/world/na/displaystory.cfm?story_sid=15452683
19. http://www.chinadaily.com.cn/china/2010-02/01/content_9409528.htm
20. http://www.defense.gov/QDR/QDR%20as%20of%2029JAN10%201600.pdf
21. http://www.businessweek.com/news/2010-02-18/obama-dalai-lama-talks-show-u-s-china-stay-rivals-update2-.html
22. http://timesofindia.indiatimes.com/world/china/Dalai-Lama-is-political-monk-says-Chinese-official/articleshow/5640034.cms
23. http://chinatibet.people.com.cn/6931116.html
24. http://www.economist.com/world/na/displaystory.cfm?story_id=15452683
25. http://www.economist.com/world/asia/displaystory.cfm?story_id=15546095″
26. http://www.csmonitor.com/Commentary/Opinion/2010/0311/Why-China-drags-its-feet-on-UN-sanctions-against-Iran
27. http://www.reuters.com/article/idUSTRE62G2W920100317
28. http://www.ft.com/cms/s/0/f220dfac-14d4-11df-8f1d-00144feab49a.html
29. http://www.politico.com/blogs/laurarozen/0110/Pledging_unity_the_P51_meets_on_Iran.html
30. http://www.politico.com/news/stories/1209/30181.html
31. http://www.alertnet.org/thenews/newsdesk/BAK353014.htm

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