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Wednesday Aug 18, 2010

US - China Relations

STRATFOR,  August 11, 2010

NEW POINTS OF FRICTION IN U.S.-CHINA RELATIONS

An expected visit by Chinese President Hu Jintao to the U.S. in Sept. is "highly unlikely,"
according to the South China Morning Post, citing Chinese diplomats who claimed that
lower-level negotiations in preparation for the visit have not finished on time and no
further talks had been planned.  Of course, Hu's trip was not set in stone and rumors
have suggested it may be canceled due to running disputes between the two states.
Nevertheless, the latest indications after the G-20 meeting in Canada in late June
suggested the meeting would be held, and now that expectation has been put into doubt.

A failure by Hu to visit the U.S. in Sept. -- which could result in no visit this year despite
U.S. President Barack Obama's invitation in Nov. 2009 -- would be representative of the
widening rifts between the world's two largest economies.

These rifts split the two countries across a range of economic, political and military
policies.  The trade relationship is a perennial source of ill feeling, and longstanding v.
disputes in this area are set to heat up again following the latest economic statistics
out of China.  In July, the Chinese trade surplus grew by 170 percent compared to last
July, reaching nearly $29 billion, the highest level since Jan. 2009, on robust exports
and lower-than-expected imports.  While the outlook for China's domestic economy is
darkening for the second half of the year, the immediate snapshot shows a China that
continues to benefit from surging exports.

This comes at a time when the U.S. has suffered another round of negative news,
including a reinforcement of high unemployment levels.  Washington sees the trade
imbalance with Beijing as a contributing factor to its economic pain and a result of
mercantilist policies, and has demanded that Beijing address the problem by at the
very least allowing its tightly controlled currency to fluctuate more freely.  Beijing
signaled in June that it would do so, prompting the U.S. to refrain from criticizing
China in a key report, but in the nearly two months since, the yuan has not risen as
much as a full percentage point against the U.S. dollar.  Needless to say, Washington
senses that it has become a dupe to empty assurances at a time when President Obama's
popularity is suffering, and U.S. congressional representatives -- many facing elections
in Nov. -- need concrete results to show voters they are stopping Chinese policies from
hurting American jobs.  Therefore, the July news will provide U.S. politicians with
more ammunition to bring against China, while heightening China's own economic
anxieties and likely making it more reactive to U.S. demands.

Military tensions have also worsened, beyond the current freeze on military-to-military
talks or spats over U.S. arms sales to Taiwan.  If Hu does not visit Obama this year, it
will be reminiscent of the fact that in June China canceled a planned visit by U.S.
Secretary of Defense Robert Gates.  Military friction has risen as the U.S. has sought
to bolster its alliances in the Asia Pacific region following heightened security risks on
the Korean peninsula, and has reached out to old and new partners as part of its
re-engagement policy with Southeast Asia, including an offer to mediate disputes over
boundaries in the South China Sea.

"Over the past few months it became apparent to Washington that China had even less
intention of cooperating with the U.S. in handling North Korea than in handling Iran."

By issuing numerous diplomatic protestations and conducting a series of military
exercises in its neighboring seas, the Chinese sought to deter the U.S. from moving
forward with what it considered provocative actions, namely deploying the USS George
Washington nuclear aircraft carrier in the Yellow Sea, the maritime approach to China's
capital city and strategic core.  China's harsh reaction to the U.S. plan initially appeared
to gain China a symbolic victory.  The U.S. appeared eager to avoid confrontation,
whether it feared offending China or merely wanted to let regional tempers cool.  But in
recent weeks the U.S. redoubled its response, declaring that it would in fact send the
aircraft carrier to future exercises in the Yellow Sea, and then, on Aug. 8, sending it on
a separate visit to Vietnam to commemorate the restoration of U.S. - Vietnamese ties in
1995, followed by a round of exercises between the USS John McCain and the
Vietnamese navy that began on Tues.  Enhanced U.S. cooperation with Vietnam has caused
deep consternation in China, since Vietnam is a traditional rival and the most aggressive
opponent to Beijing's expanding claims of authority in the South China Sea.

The U.S. has accelerated its involvement in Southeast Asia and has sought to build
credibility for this policy with states that fear favoring the U.S. will expose them to
hostility from China while not providing them with compensatory guarantees.  While the
U.S. claims the policy merely consists of reaching out to natural partners, maintaining
normal bilateral relations and asserting the U.S. Navy's right to sail on international
waters, China sees it as a siege strategy and an attempt to constrain China's national
security and regional influence.  It also views the policy as an early attempt to stop
China from securing its advantage in the region before the U.S. frees up more room
for maneuver by withdrawing from Iraq and Afghanistan.  Most alarming for Beijing
has been the rapidity with which the U.S. has begun to implement the policy.  The last
thing China needs, as it heads into a generational leadership transition in 2012, is
intensified pressure on its periphery from the global superpower.

The U.S. has long planned to revamp its policy in Southeast Asia, after effectively
washing its hands of the region after the end of the Cold War.  But aside from
increased counterterrorism cooperation with a number of states following 9/11, U.S.
plans have repeatedly been deferred in the face of more pressing matters in the
Middle East and South Asia.  There is no shortage of reasons for the U.S. to advance
this policy now, regardless of Chinese objections, since the U.S. foresees a range of
economic benefits and security advantages arising from greater ties with the
Association of Southeast Asian Nations states.

But China's uncompromising response to the ChonAn incident in particular seems to
have given the U.S. greater impetus.  Over the past few months it became apparent to
Washington that China had even less intention of cooperating with the U.S. in handling
North Korea than in handling Iran.  The U.S. became aware that if it failed to make a
strong show of alliance solidarity, the credit would go to China for deterring it, which
would reverberate throughout the region to the detriment of Washington's engagement
policy and broader interests.  The U.S. thus appears to have chosen not only to bulk up
its existing alliance structure but also to speed up the Southeast Asia push that was
already under way.  This is adding new points of friction to the U.S. - China relationship,
even as longstanding disagreements show no sign of abating.
    Copyright 2010 STRATFOR.

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