US-China: Why Obama's weakness could be his greatest strength



BOSTON — With Chinese President Hu Jintao in Washington this week, U.S. President Barack Obama has heard plenty of vocal advice on how to handle his Chinese counterpart.

His Secretary of State Hillary Clinton, members of Congress and activists worldwide urged him to press Hu on China's human rights record, particularly Beijing's treatment of Nobel Prize winner Liu Xiaobo (he did).

His Treasury Secretary Timothy Geithner urged him to focus on China's undervalued currency, despite the yuan hitting a 17-year high versus the dollar this week (he did).

U.S. business leaders urged him to improve access to China's growing domestic market of 1.3 billion potential consumers (he did).

That's a lot of tough talk, especially from an American leader who — according to the zeitgeist of the web — has been forced by economic crisis into a subservient, even obsequious, role when it comes to a newly swaggering China.

This video making the viral rounds this week nicely sums up the mood:

Funny stuff, for sure. But like all great humor (see the Ricky Gervais Golden Globes assault on Hollywood this week), there's more than a grain of important truth in here. And even some instructive value.

When it comes to the complex U.S.-China economic relationship, a little calculated subservience on Obama's part might go a long way in helping Hu manage a very difficult situation back home.

That's because — despite all the red-meat rhetoric to the contrary — China isn't yet the great global power that many in the United States fear. And, kowtowing to the dragon may actually be in the United States' best interest.

In fact, there are plenty of worrying weaknesses that Hu and team must artfully manage for the good of China, and — because of the interdependent nature of this critical bilateral relationship — the good of the U.S.

That's especially true on the economic policy side, where Beijing is midway through a very delicate, and potentially very dangerous, task: Can Chinese leaders successfully transfer the surging wealth of its industrialized and modern coastal areas to its rural, and still desperately poor, interior?

Most importantly, can they pull this off with minimum domestic rancor, manageable political instability, and — in a worst-case scenario — without breaking the country apart?

These are not idle concerns. Righting this economic inequality is a necessary step in insuring a stable, peaceful, and prosperous China. Moreover, they're packed with global economic and political implications.

First up is a looming transfer of power at the top of the Chinese government. Next year Hu will be replaced by Xi Jinping, a rising political star and son of a revolutionary hero (and former governor of booming Guangdong province).

So far, Hu has managed this transfer with brains and tact. But a power shift of this magnitude comes with complications, especially as the leadership strives to strike the right balance between future economic reform and greater political openness. Questions will no doubt arise, as they did last week when China's military tested its J-20 stealth fighter jet during a visit by U.S. Defense Secretary Robert Gates — apparently without Hu's knowledge.

On the domestic front, protests across China are rising along with economic inequality. An estimated 70,000 protests occur across China each year (some 200 a day), according to the Society for Anglo-Chinese Understanding. That's a worrying number for any country. It's a particularly troubling statistic in China, where social media is exploding, and in a country that has more internet users (384 million) than any other in the world.

Then, of course, there's a worrying real estate bubble, seen most acutely in Shanghai. Meanwhile, as GlobalPost's David Case pointed out, credit rating agency Fitch Ratings last month issued a troubling report on banking practices associated with Chinese loans. It said these practices — involving the transfer of loans from banks’ books — constitute “the most disconcerting trend Fitch has observed in China’s banking sector in recent years.”

And let's not forget potential environmental disasters that the mad dash for economic growth can produce, despite China's efforts to build up a sustainable green energy future

To be sure, it's not all doom, gloom and nightmarish thoughts in China.

Following Deng Xiaoping's reforms three decades ago, the country has made tremendous economic and social gains. China's rise is perhaps the most remarkable development in economic history. And, yes, Beijing emerged from the global economic crisis in a stronger economic and political position.

Most importantly, the U.S. and China desperately need each other. China does, after all, hold $895 billion in U.S. debt (more than any other country), and provides a key labor pool for many U.S. companies' supply chains. And the U.S. economy, despite its problems, is still more than twice the size of China's economy and the U.S. remains the most important market for Chinese exports. The two countries do, indeed, share a common economic fate.

Then there are the geopolitical implications to consider — from the positive influence Beijing can play with taming North Korea, to the diplomatic pressure it can apply to Iran's nuclear ambitions, to promoting political stability with its historic rival Japan, to helping other countries in Asia and elsewhere develop their own economies along the Chinese model.

So it may be best in the long run for President Obama to take the humble road, despite the domestic heat he would no doubt endure. Symbolism matters, particularly in China. U.S. weakness, perceived or otherwise, is a strength if it can help China develop peacefully, while creating a huge middle class of consumers that will form a critical market for U.S. businesses.

Power is ever-shifting and always complicated. We can all live with a swaggering, even increasingly nationalistic, China.

But there would be nothing good — and certainly nothing funny — about a world wracked by a weakened, damaged, and dangerous giant.