The US and China: Friends or Foes? – David Shambaugh and Daniel L. Rosen

From Yale Global Online, a two-part article about the relationship between China and the U.S. From the Introduction to Part I, by David Shambaugh (link):

The US and China are parties to the world’s most important bilateral relationship, and this two-part series analyzes the challenges and opportunities confronting two world powers. In the first article, China scholar David Shambaugh presents a litany of issues that bedevil their relations. From President Bush’s perspective, three points of contention most likely to take center stage: First is China’s reluctance, viewed as a roadblock to UN Security Council action, to condemn Iran’s uranium-enrichment program and ambitions for nuclear-weapons capability. The second is China’s “hands-off” approach to North Korea’s nuclear program. Third is China’s push to lock-up global energy supplies, which according to the Bush administration, hikes up prices and intensifies the scramble for resources. On the other hand, China questions motives for amassing US troops in Asia, Bush’s nuclear deal with India, and the US not urging Japan to admit atrocities from World War II. And then there is a long list of economic issues. At past Sino-US summits, leaders often engaged in abstract ruminations on the value of the relationship. But there’s a new sense of urgency, which according to Shambaugh, could lead to “a real working summit” and real progress for world stability.

And from the Introduction to Part II (link), by Daniel Rosen:

The US and China are the world’s two largest economies – but the citizens of the two nations differ in terms of financial habits. For example in 2005, savings accounted for at least 30 percent of Chinese household income while the US registered no savings at all. In the second of this two-part series, economist Daniel H. Rosen analyzes the implications of China’s increasing interdependence with the world economy. A booming manufacturing sector fueled China’s rapid economic growth. By sustaining an open current account along with a closed capital account, China could establish a competitive advantage in the production of labor-intensive goods without being affected by unpredictable international financial flows. As the country’s economy matures, however, the value of exposing its financial sector to the global market also increases. The People’s Bank of China has announced that it will revise some foreign-exchange policies by opening parts of the country’s capital account and easing the flow of money in and out of the country. Currently, Chinese households earn about 2 percent interest on their savings, and the new policies allow limited investment by Chinese citizens in foreign institutions giving them the potential for higher returns. However, the new adjustments could lead to some long-term uncertainty about the value of the RMB, as well as more consumption in China. Any policy change by one economy influences the other, and the new policies could create winners and losers, both in China and the US.



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