Long-simmering tensions between Beijing and Washington over the value of China’s currency have spilled over into angry words at the highest level, further damaging ties hit by a series of disputes in the few brief weeks since the start of the year.
The chill over one of the world’s most important diplomatic relationships is almost certain to deepen in the next few months as the world’s largest and third-largest economies tackle an array of contentious issues, ranging from cyber attacks to the Dalai Lama.
China responded swiftly to a pledge from President Barack Obama that he would get tougher with Beijing over the value of the yuan, which Washington believes is artificially undervalued. Foreign Ministry spokesman Ma Zhaoxu said: “Accusations and pressure do not help to solve the problem.”
Just hours earlier, President Obama hinted at a shift away from the mild approach that he had earlier adopted – most notably on his first official visit to China late last year when he avoided criticising his hosts in public and appeared to acquiesce to restrictions on a “town hall” meeting and remarks to the media.
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Speaking to a group of Senate Democrats, he addressed one of the biggest bones of contention – the value of the yuan, which has been effectively frozen by Beijing since July 2008 to help its exporters weather the global recession. That move has angered China’s competitors who contend that this is currency manipulation and is unfair and damaging.
President Obama said: “One of the challenges that we’ve got to address internationally is currency rates and how they match up to make sure that our goods are not artificially inflated in price and their goods are artificially deflated in price.”
The chances that China will allow the currency to strengthen in response to such public criticism are virtually nil. But domestic politics may be more important to both sides.
China’s Foreign Minister, Yang Jiechi, has a chance today in the opening speech to the Munich Security Conference to tell the world that the more assertive country it has seen in recent months is not one of which to be afraid.
It is likely that he will stick to a neutral script with which Beijing is comfortable, insisting that China remains too undeveloped to pose a threat and that its foreign policy in any case is predicated on a balance of global power.
Beijing will want to deliver that message while placating an audience at home that expects its leaders to demonstrate their growing strength, just as President Obama wants to persuade Americans that he will not let China take advantage of its weak currency while the U.S. struggles out of recession. Elizabeth Economy, of the Council for Foreign Relations in Washington, wrote: “The United States… needs to regain some political ground at home on the China front. After months of extending its hand to Beijing, the Obama team has realised that Beijing has no plans to hold hands.”
While China and the U.S. may not want to hold hands, both have known for months that a rocky period was coming up – with President Obama set to meet the Dalai Lama.
However, there is the risk of one side overplaying its hand: U.S. approval last month of arms sales to Taiwan, flagged months in advance, has drawn unusually fierce angry volleys from Beijing.
The outcome of the latest downturn in their rollercoaster relationship could turn on just how much Chinese President Hu Jintao wants the prestige of a reception at the White House. He has accepted an invitation for a visit expected in mid to late November. Both sides will want the disputes cleared up well before that date.
Ms Economy wrote: “In the end, after the leaders of both countries have satisfied their domestic audiences as well as made themselves feel a bit better by articulating the way they really feel, they will return to the table faced with the greatest challenge of all—maintaining the G-2 mirage.”
