Obama and China – small clouds on bright horizon?

President Obama has got off to a flying start on his foreign relations commitments; drawing up an order to close Guantanamo, announcing his readiness to talk to Teheran without preconditions, ordering the military to draw up plans for a full withdrawal from Iraq, and contacting Middle East leaders in what was promoted as a move to revive the ‘peace process’.

Cynics and the ungrateful might cavil that he also pledged to send more troops to Afghanistan, and made no mention of talking to Hamas. But there again, he was acting consistently with his pre-election pledges. Which should remind us that holding successful candidates to their pledges is not a risk-free operation.

China is another policy area where a literal adherence to pre-election rhetoric by the new Administration might aggravate international tension rather than the opposite - which helps to explain the apparent contrast between the enthusiasm of many ordinary Chinese at the prospect of the Obama Presidency, and the caution of official circles.

As David Schlesinger, Editor in Chief of Reuters News, pointed out in a talk this week at Chatham House in London, the Obama Administration's relationship with Beijing will be increasingly important for the global economy and for global security.

As the new century began, the contrast between booming China and the stagnating USA led to fantasies of ‘decoupling’ between the economies of China and the other booming ‘Asian tigers’, and that of the US and the West as a whole. But since then the global crisis has brought out the reality of an interdependent world, where China is the biggest holder of US Treasury bonds, and the USA is the biggest purchaser of Chinese exports - an interdependence which the historian Niall Ferguson has dubbed ‘Chimerica’.

As the slowdown deepens in China as well as in the US, latest figures show China’s economic growth in the last quarter slowing to an annual rate of 6.8% - the weakest growth rate for seven years. For 2008 as a whole the economy grew by 9%, down from a revised figure of 13% for 2007. [Financial Times 22 January 2009].

China’s official jobless rate jumped for the first time since 2003 and was relax implementation of China’s new Labour Contract Law, which extends employee rights .

So as David Schlesinger pointed out, redundant workers in the US rustbelt and in a factory in Guangzhou face a common situation. But as he also added ‘a common situation does not mean common cause’.

Which brings us back to Obama’s campaign pledges. "China's human rights violations and failure to enforce labor, environment and meaningful product safety standards are unacceptable," Obama told a Fair Trade conference last year. "Unlike our current president, I will take trade enforcement seriously."

Former Dallas Mayor Ron Kirk, Obama's appointee as U.S. trade representative, also promised to focus on workers rights. Obama said commending him; "He knows there is nothing inconsistent about standing up for free trade and standing up for American workers," and promised a way to stimulate domestic spending during the current economic downturn. The Chinese have a high savings rate, and one of the reasons usually cited is their worry about possible medical expenses because China lacks a social safety net, including affordable health care.

‘Bai Zhongen, chairman of the economics department at Tsinghua University’s School of Economics and Management in Beijing, said that establishing universal health care with government-financed insurance would increase general consumer spending. He said the school did a survey in 2007 about the effect of rural health insurance on consumer behaviour and “found that in government-sponsored health insurance areas, people are spending more.”

So what are the indicators we should look for in judging which way the new Administration will jump? One key test, according to Schlesinger, will be on 15 April, when the US Treasury is due to issue its semi-annual currency report in which it is required to adjudicate on whether any foreign country is judged to be manipulating its exchange rate so as to gain an unfair trade advantage. Here too an adverse finding could trigger trade reprisals.

But Paul Geithner the new Treasury Secretary has the reputation of an ‘old Asia hand’ and is judged unlikely to rock the boat at a time when Washington needs Beijing to continue buying US Treasuries. Nonetheless Congressional pressure could still be brought to bear.

Taiwan has also been a flashpoint in US-China relations in the past. Fortunately the likelihood of tension increasing on this front has diminished since the return of the KMT in Taiwan’s recent elections. Indeed Taiwan's military have recently announced plans to cut their armed forces.

Another source of possible friction is House Speaker Nancy Pelosi, whose vociferous record on human rights issues, in championing Chinese dissidents and on Tibet led to China’s official Xinhua news agency describing her as ‘disgusting’ and ‘detested by most Chinese’. Tibet has also been an issue for Obama himself, who according to Schlesinger was the first Presidential candidate to speak out on the issue during the campaign.

Here the key question is not whether Obama or Pelosi will suddenly stay silent on these issues - though democratic reformers within China may wonder if public pressure from the US Administration is the best way to further their cause. The question is rather whether there is any risk of these issues being used as a pretext for a trade war. As David Schlesinger advises, ‘making this relationship a political plaything will not work’.

But one should never underestimate the danger of mounting economic crisis converting into political instability in which the smallest miscalculation, in Washington or Beijing could have unforeseen consequences. However unlikely, a return to confrontation between Washington and Beijing could have disastrous consequences - not least for Africa.

∗Stephen Marks is a research associate with Fahamu’s China in Africa programme.

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