A more China-hostile House?

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December 2006

From "Why Nancy Pelosi frightens China" by Joshua Kurlantzick on the website of The New Republic, November 16, 2006:

In fact, in contrast to 15 years ago, the United States now increasingly relies on China as an interlocutor with rogue regimes like North Korea. Beijing also now has some one trillion in reserves of US dollars, making it a major creditor, and the US and Chinese economies are far more interlinked than they were 15 years ago. Any significant downturn in the Chinese economy, including a downturn created by significant trade restrictions, would devastate many US companies. Any decrease in China's reserves would make it far harder for the United States to run the current account deficit that keeps America's economy humming.

Today, Pelosi - and the whole Democratic Party - needs a new China policy. This policy must draw upon the progressive values Pelosi stands for. But this policy must also recognize that China has become too powerful to be contained or thoroughly sanctioned. Such an approach would recognize that China now is both dangerously strong and dangerously weak, capable of challenging the United States abroad and capable of imploding into a financial or political crisis that, because of China's links to the world, could threaten the US economy.

From "America needs to negotiate with North Korea" by Maurice "Hank" Greenberg in the Financial Times, October 25, 2006:

The Chinese, who were as surprised and irritated as anyone by Mr Kim's nuclear adventure, will no doubt do their part to make sure bilateral talks bear fruit. They desperately want a nuclear-free Korean peninsula. The prospect of North Korea, South Korea and Japan locked in a deadly arms race is a nightmare scenario for Beijing and the rest of the world. So is the prospect of political instability across China's 880-mile border with North Korea. The last thing Beijing needs to deal with is the gaping power vacuum that would follow the disintegration of Mr Kim's government.

That is why, when the US, Japan, Britain, Australia and other key allies vowed to press ahead with trade sanctions, limiting Mr Kim's access to everything from fine wines to finely tuned weapons systems, China demurred somewhat, saying it would not engage in stopping and searching North Korean cargo ships at sea. Maybe that annoys Washington, but for China, the implications of a destabilized North Korea are grim.

China is not interested in regime change in North Korea. Behavior change is what Beijing wants. China already has its hands full trying to raise living standards for its 1.3 billion citizens, some 150 million of whom struggle with poverty every day. A political meltdown in North Korea, where an estimated 2.5 million people starved to death in the 1990s, would most likely touch off a humanitarian crisis, with a flood of impoverished North Koreans pouring into China. (Imagine Washington countenancing a Security Council resolution that caused illegal immigration from Mexico to quadruple overnight.) No wonder China supplies more food aid to North Korea each year than any other nation.

From UBS Asian Focus, "As If China Really Needed Foreign Investment", by Jonathan Anderson, November 13, 2006:

...Thus, the government is turning to new priorities: Away from "quantity" and towards "quality". Away from old-style light manufacturing to higher value-added technologies and services. Away from wasteful energy-intensive sectors and towards environmentally sound, energy saving areas. And away from the developed eastern seaboard into the inland provinces and farms. On the face of it, this could easily be seen as a historical inflection point in Chinese foreign economic policy.

The new [National Development and Reform Commission] guidelines [for utilizing foreign investment] explicitly mention the need for tax consolidation once again, another indication that we should see action on this front. On the other hand, this is hardly news, and in our experience investors have been expecting this change for a good while now.

But what about the rest? Will China be placing more onerous sectoral restrictions on foreign investment? Clamping down on local approvals? Use national security or ecological concerns to cut back sharply on new foreign inflows? And could this have a serious impact on the overall macro environment? In our view, you should feel free to ignore the rest. FDI into China should go on as before, more or less uninterrupted - and the growth outlook is hardly at risk. Here are five reasons why: 1) FDI has simply not been an important driver of growth in the past five years. 2) Most current FDI is already in higher value-added areas. 3) Multinationals, in particular, are not active in export manufacturing. 4) We don't believe the government has the policy tools to achieve a significant shift in FDI inflows. 5) Despite what you might read in the press, China is not in the middle of a major "backlash" against foreign competition.

The abovementioned guidelines are accessible here in Chinese.

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