Rift Widens as U.S. and China Pursue Conflicting Goals

From the New York Times:

They say that China emphasizes sovereignty issues while refusing to give any weight to the Obama administration’s two top priorities: containing Iran’s nuclear ambitions and rebalancing currencies and trade. The Americans have also highlighted issues of Internet censorship and security. “There’s not a lot of overlap in the Venn diagram,” an American official involved in China policy said on the condition on anonymity, following diplomatic protocol. “What’s really the most worrisome is the degree to which we have that disconnect.”

Those tensions are likely to worsen in coming months as domestic pressures in each country push the two governments to assert their agendas more boldly. On the American side, a struggling economy is forcing the Obama administration to make currency valuation and market liberalization top priorities. With a nearly 10 percent unemployment rate and mid-term elections coming up, American officials are aware that pushing China to raise the value of the Chinese currency, the renminbi, and allowing American companies greater access to some Chinese markets could be important political wins for Mr. Obama and the Democratic Party… Economists say the renminbi is undervalued by 25 to 40 percent, wider than at any time since 2005, when under pressure from the Bush administration, China decided to allow the renminbi to float in a narrow band against the dollar and other currencies. The renminbi appreciated 21 percent, but has not moved at all since July 2008. Earlier this month, Ma Zhaoxu, a Foreign Ministry spokesman, rejected an unusually public call by Mr. Obama for China to revalue its currency, saying that “the value of the renminbi is getting to a reasonable and balanced level.”

The problem for the Americans is that job creation is also a priority for the Chinese government, because the legitimacy of the Communist Party is based largely on economic growth. A year ago, when the global recession resulted in a severe slump in exports, Chinese officials said 20 million migrant workers lost their jobs. The export industry in China is only now starting to recover, and the low value of the renminbi is crucial for Chinese companies selling goods abroad.

And from Al Jazeera:


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