With each delay, the stakes get higher

Asia Times

BEIJING - China's perceived "victory" over the United States in the EP-3 spy plane dispute and its present assertion as a rising superpower is very important for domestic public opinion and will thus support a future groundbreaking decision by President Jiang Zemin. On July 1, 2002, he will give a historical assessment of the Communist Party to mark the 80th anniversary of its founding, and two months later he will open the 16th Party Congress.

Both occasions are crucial in the push for further reforms, including a possible early agenda for political reform, and to bolster Jiang's plans for a smooth succession. In the meantime, however, the US will have to digest the spy plane crisis - and there are many signs that things may slowly turn sour in America for China.

First of all, President George W Bush has been wounded at the very beginning of a weak presidency, (because of the very thin majority he mustered in defeating Democrat Al Gore). He has been dragged into an international crisis he wanted to avoid, and had to give in right away to China, the country he said was the new focus of US foreign policy and which he had shunned as a strategic partner and instead branded a strategic competitor.

The present predicament could convince the new US administration that competition with China is fierce indeed and should demand more stringent, tougher strategies. In doing so, the Bush administration would please both the Congress and the Senate, which have been growing increasingly belligerent toward China, and thus secure from them the necessary support to pass its fundamental tax-cut project designed to boost the flagging US economy.

There have been signals in the past few days of movement in this very direction. Two Congress delegations have postponed their trips to China and a delegation of the American Chamber of Commerce is considering doing likewise. The chamber, which represents some 3 million American businesses, last week issued strong warnings to Beijing in calling for an early release of the 24-man crew of the downed EP-3 surveillance plane. The chamber has great leverage over China, sitting as it does on top of some US$75 billion of bilateral trade last year. The US is in fact China's largest trading partner and also the de facto greatest financing body of China's modernization, which it has so far helped by tolerating a yearly multibillion-dollar trade deficit.

For this reason, the vote in June on whether to grant China the status of Permanent Normal Trade Relations (PNTR) for one more year is so crucial for Beijng. Last year, the Clinton administration managed to have Congress pass a permanent PNTR for China after it joined the World Trade Organization (WTO). But in the meantime, China has not yet joined the WTO and the PNTR vote at the Congress this year could well become a trying ordeal for Beijing. It is unlikely that, with elections still two years away, Congress will not once again pass PNTR, which is also crucial to a strong lobby of American companies doing business with China. Yet, a tough fight to get PNTR passed would be vexing for Chinese public opinion, which is finely atuned to the mood in the United States.

And even more tantalizing will be the decision, also in June, by the International Olympic Committee on whether to grant the 2008 Olympic Summer Games to Beijing. The US Congress has already voted against Beijing's bid for the Olympics and in the following months it could reinforce its determination to prevent the Games from being awarded to China.

All this takes place while General Motors has issued a letter to its expatriate workforce in China to be cautious and some Chinese web surfers have called for a boycott of American goods. The latter is sheer nonsense, but is telling of how high emotions are on this side of the Pacific, and how volatile the atmosphere in the following months could become.

These emotions and the possibility of trade retaliations occur at a difficult time for the world economy, and in particular for the Asian economy. Japan's yen has been sliding for the past months, while its politicians struggled to come to grips with the strange kabuki theater-performance delivered by Japanese Prime Minister Yoshiro Mori who resigned, then retracted his resignation then eventually (last week) resigned again, this time formally. Japan's weakness could push the yen further down toward the dangerous line of 130 yen per US dollar, where the Chinese renminbi would be under pressure to devalue.

As the 1997 financial crisis proved, the renminbi can resist until the yen reaches 140 to the dollar without devaluating - which would trigger a dangerous turn of competitive devaluations in the region, and in turn push into a spin the whole of Asia. But even without devaluation, China could shoulder the burden of sustaining its exchange rate, yet introduce tax cuts that would make its exports still more competitive vis-a-vis cheaper Japanese exports. This in turn would not make things easy for other countries in the region, especially if the US economy were not to recover from its slump for at least six more months, as many economists expect.

In this scenario, China could be more subject to a different pattern of US trade, which would put its economy under more stress. This predicament will entail more trade - and possibly even political - friction between China and the US.

In the short term, the solution for China is to make a weak President Bush its ally, by protecting his back in these difficult times. This will mean that Bush should not be forced by China to lose all his "face" by fully apologizing. Yet, as Jiang has already asked for an apology, there should be something in the settlement of the dispute that will not make Jiang lose face either. The two leaders obviously share a political interest in finding such a solution.

But while the predicament should force the two presidents to work more closely together, it remains to be seen whether Bush will make the U-turn this requires of him after the claims he made with his new, tougher stand on China. Furthermore, in what direction will popular American opinion head after having been so stirred by the 24 servicemen who many already are calling "hostages"? These are long-term problems.

One such problem that China has to tackle is to dramatically improve its image worldwide. Another is that it has very few de facto friends in the world willing to stand up for her or to pass her a word of caution. This is arguably a problem also for the US, which has no other channel through which to to push China in critical moments.

These issues need deep rethinking to defuse the possible long-term, negative impact of the stand-off, for the US, Asia and the rest of the world.

Part 1: China has the strategic upper hand - for now ( (2001-04-11 Asia Times)


+MoreOther Commentary